The fallout of the crisis in West Asia on India’s economy, Pg6

Key Highlights:

• The West Asia crisis has disrupted the global economy, impacting energy production, storage, and transport, leading to supply disruptions and price increases.
• India imports crude oil from 41 countries, with import dependence near 90%.
• The Indian crude basket price reached $157 per barrel on March 23, 2026, before a temporary ceasefire brought it down to $120.28 per barrel on April 9, 2026.
• India's merchandise exports to West Asia constituted 16.4% of total exports in 2024-25.
• Net Foreign Portfolio Investment (FPI) outflows in March 2026 amounted to $13.6 billion.

Detailed Insights:

• Supply disruptions from the crisis will affect energy-intensive sectors like textiles, paints, chemicals, fertilizers, cement, and tyres, potentially impacting agricultural output in the Kharif season.
• Increased logistics costs due to higher energy prices will lead to price increases across all final products.
• Depreciation of the Indian rupee has accelerated due to the West Asia crisis, increasing demand for dollars and other hard currencies.
• Reduced remittances from Indians in Gulf countries will add pressure on the exchange rate, though improvements in the overall environment may strengthen the rupee.
• A continued crisis could lead to a higher current account deficit due to decreased exports and increased import values.
• The government may face increased fiscal pressure to provide subsidies to Oil Marketing Companies (OMCs) while dealing with potential revenue losses from reduced excise duties.
• Lower excise duties on petrol and diesel are estimated to cause a net loss of ₹5,500 crore per fortnight, potentially leading to an annual loss of ₹1,32,000 crore.
• RBI estimates suggest that every 10% increase in the Indian crude basket price above $70 per barrel could decrease real GDP growth by around 15 basis points and increase inflation by 30 basis points.

Key Concepts Involved:

• Crude Basket: A weighted average of crude oil prices that serves as a benchmark for a country's oil imports.
• Current Account Deficit: The shortfall when a country's total imports of goods, services, and transfers are greater than its total exports.
• Fiscal Deficit: The difference between a government's total revenue and its total expenditure.