By Fawzia Moodley:
As a tenuous ceasefire holds between Israel and Iran after a 12-day war in June, the conflict served to underline India’s economic resilience in the face of an increasingly volatile situation in the Middle East. It was also a reminder for India to decrease its reliance on Israel (and Russia) for weapons by building its own arms industry.
Had the Israel-Iran conflict escalated, leading to massive oil price increases, India’s economy, like that of most other countries, would undoubtedly have been hard hit. The 12 days of fighting turned out to be a test of India’s economic resilience and policy direction. The country came out with flying colours, proving to be a stable beacon in an uncertain geopolitical global stage wracked by conflict and tariff tensions.
India’s ability to emerge relatively unscathed from the West Asian tensions is largely due to New Delhi’s limited overall economic exposure to Israel and Iran. India’s total trade with both countries is a fraction of its overall trade basket, which, according to the Times of Oman, crossed $824 billion during the 2024-25 fiscal year.
The limited impact on India’s economy by the West Asian tensions is also attributable to its well-managed port infrastructure, diversified export destinations, and strong bilateral mechanisms.
India’s main exports to Iran are rice, and engineering and petroleum products, while its exports to Israel include gems and jewellery, as well as engineering and electronic goods. India imports electrical machinery and precious stones from Israel, while sourcing agricultural products,minerals, oil and chemicals from Iran.
India imports 85% of its crude oil and is vulnerable to oil price spikes. There are concerns of price volatility linked to the Middle East tensions, but the consensus is that short-term fluctuations in oil prices are unlikely to have a major impact, especially because India has adequate strategic reserves and benefits from hedging practices.
The ceasefire agreed by the warring parties slashed energy costs and eased pressure on India’s trade deficit, leading to projections of a reduction in the country’s annual import bill. In fact, the Indian currency strengthened shortly after the S&P upgraded its GDP outlook on June 24.
The Israel-Iran conflict is but one of a series of global headwinds, including the Russia-Ukraine war, and the uncertainty resulting from US President Donald Trump’s political and economic policies, which have shaken the world to the core. While many countries are reeling from the impact of these challenges, India’s economy has withstood these shocks admirably, even registering growth in many sectors.
The Indian economy is expanding steadily, investor confidence is high with Foreign Direct Investment (FDI) reaching a three-year high in 2024-25, and its exports are at an all-time high. The prognosis for the new fiscal year is upbeat with expectations of a good monsoon, rising rural demand, and enhanced credit flows to consumers and producers, adding momentum to its growth trajectory.
But while India can count on its economic resilience in an unstable world, the global geopolitical instability also underlines India’s vulnerability due to its reliance on old Russian weaponry as well as new Israeli defence imports, which may set back its modernization programme. Russia’s military supplies have been unreliable since its war with Ukraine, while Israel’s military adventures may hamper its ability to deliver orders to India.
In a recent CNBC Inside India newsletter, author Ganesh Rao noted: “India would certainly not have wanted to suffer yet another delay in weapons procurement, were the Iran-Israel conflict to drag on.” “The message is clear: India needs to build its own arms industry and boost home-grown weapons capacity. Out of this crisis, India has made an opportunity to grow its domestic defense industry.”
Rao commented that analysts at JP Morgan had identified the current geopolitical conflicts as a “pivotal moment for widespread recognition of BEL’s (India’s Bharat Electronics) capabilities”.
New Delhi has been quick to realise the need to hasten the development of its weapons and defence capabilities. A clear sign is ‘Project Kusha’, India’s alternative to the Russian S-400 air defense system, with BEL as a key development partner. This is an ambitious indigenous long range air defence system under the Defence Research and Development Organisation (DRDO).
Whether the truce between Israel and Iran holds, India is setting itself up to be resilient not just economically but also preparing to become self-sufficient in terms of its military capability, which is crucial to its survival in the face of ongoing tensions with neighbouring Pakistan. – @NewsSA_Online
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