Diffusing Middle-East Tensions - Eastern Mirror
Sunday, May 26, 2024

Diffusing Middle-East Tensions

By The Editorial Team Updated: Apr 23, 2024 1:03 am

The International Monetary Fund (IMF) has predicted that India may register higher GDP growth than expected if supplemented by strong domestic demand in FY 24. According to the IMF, robustness in domestic demand and rise of working-age population will likely take the country’s GDP growth rate to 7.8 per cent, higher than the growth rate predicted by the National Statistical Office (NSO). However, Union Finance Minister Nirmala Sitharaman is hopeful that the country’s GDP may grow over eight per cent due to improved inflation management and macroeconomic stability. It is important to note that the economies of US and China are expected to grow by 2.7 per cent and 4.6 per cent respectively. It highlights that the Indian economy in comparison has made a remarkable recovery after the blow by the pandemic four years ago.

While the mood in the financial sector is upbeat after the IMF forecast, the prevailing geo-political situation may act as a stumbling block in India’s tryst with higher economic growth. Escalating tensions in the Middle East may act as a spoiler to economic growth. India has every reason to worry about recent developments as the crisis is threatening to substantially increase oil prices. For the biggest importer of oil in the world, this is not good news as in such an eventuality excess oil import bill will mean higher inflation. Moreover, although the country imports oil from different sources, the country is still largely dependent on gulf nations for oil. Sensing the gravity of the situation, India has already appealed concerned nations to maintain peace and not to increase crude prices.

India’s worry in this regard is quite understandable as an increase of $10 per barrel raises the inflation rate in the country by 0.3 per cent. Thus, any increase in oil prices is bound to hit oil-based sectors like aviation, transport, etc. Similarly, oil marketing companies may also be affected as their operating margin will be substantially impacted. As a result, deficits in the current account will increase, which will have an adverse effect on the fiscal deficit. Rising tensions will likely impact global gold prices which will cause further rupee depreciation and drying up of private investments and consumption. Recognising the challenges ahead of the Indian economy, RBI has kept the interest rate unchanged despite managing to keep inflation rate under check.

However, the situation demands that India plays a more proactive role in defusing the crisis in the Middle East. Both Iran and Israel have enjoyed a time-tested relationship with India and New Delhi should impress the importance of maintaining peace to the two nations. While Indo-Iran relationship goes back to ancient times, Israel has been a long trusted friend of India. As both countries are engaged in many sectors with India, it will be difficult for them to ignore India’s peace appeal.

By The Editorial Team Updated: Apr 23, 2024 1:03:32 am
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