THE STRIKE ON INDIA'S ECONOMY

AN ESCALATION IN THE ISRAEL-HAMAS WAR POSES A SERIOUS THREAT TO THE INDIAN ECONOMY AS CRUDE PRICES AND INFLATION SPIRAL AND THE PROPOSED ECONOMIC CORRIDOR WITH EUROPE VIA WEST ASIA RUNS INTO UNCERTAINTY

- M.G. Arun

For a global economy reeling under the impact of the Russian invasion of Ukraine, which began in February 2022, the Israel-Hamas war has come as a fresh challenge. On October 7, Hamas, the militant nationalist group that controls the Palestinian territory of Gaza, launched a surprise attack on major Israeli population centres, leading to retaliatory airstrikes. The conflict has claimed some 6,000 lives so far. With Israel planning to step up its offensive with a ground invasion of the Gaza Strip, casualties, destruction and geopolitical tensions are bound to rise further.

The impact of the Russia-Ukraine war on a global economy that was just recovering from the ravages of the Covid-19 pandemic was quite palpable. Involving a major energy producer (Russia) and a major agricultural producer (Ukraine), the war has led to high energy prices, a global food shortage and inflation. Both the developed world and the emerging economies are growing far slower than expected. The International Monetary Fund (IMF) estimates that global growth will slow down from 3.5 per cent in 2022 to 3 per cent in 2023 and to 2.9 per cent in 2024, well below the historical average of 3.8 per cent. “Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation,” the IMF report said, “economic activity has slowed but not stalled. Even so, growth remains slow and uneven, with widening divergences.”