Bracing for a crisis that goes beyond oil, Pg11

Key Highlights:

• India's current account deficit (CAD) reached a 10-year high of $67.1 billion in 2022-23 due to the Russia-Ukraine war.
• Net capital inflows decreased to $1.8 billion in 2024-25 and further to -$581 million during April-December 2025.
• Indian exports to GCC and West Asian countries totaled over $65.5 billion, while imports were $154.6 billion in 2024-25.
• Approximately 8.9 million overseas Indians reside in the six GCC states, contributing about 38% of India's $135.4 billion in private remittances.

Detailed Insights:

• The US-Israel versus Iran war presents challenges unlike the Russia-Ukraine conflict, with capital flows already weakened before the war.
• Foreign portfolio investors have made net sales of $18.9 billion in Indian equities last year and $3.8 billion so far in 2026, exacerbating capital account issues.
• The GCC countries are significant sources of foreign direct investment in India, spanning sectors like energy, infrastructure, retail, and data centers.
• Any major crisis in West Asia could severely impact India's merchandise trade due to higher oil and gas prices, and reduce remittance receipts, straining capital flows.
• India may increase sourcing of Russian oil to mitigate the impact, but the potential dislocation from the West Asia crisis is greater than that of the Russia-Ukraine war.
• West Asia is crucial for India's energy security and hosts a large diaspora, necessitating India's active engagement and strategic response.

Key Concepts Involved:

• Current Account Deficit (CAD): Measures the difference between a country's savings and investments.
• Foreign Direct Investment (FDI): An investment made by a firm or individual in one country into business interests located in another country.
• Remittances: Money sent by migrants to their family members in their home country.