India’s economy has displayed impressive resilience in the face of recent shocks, from the Covid-19 pandemic to punitive tariffs imposed by US President Donald Trump last year. The Iran war could, however, prove to be a test too far.
The fast-growing economy has been particularly exposed to the conflict. It imports 90 per cent of its oil, 60 per cent of its liquefied petroleum gas and about 85 per cent of the natural gas used to make fertiliser — and a significant portion of these commodities would usually pass through the Strait of Hormuz. But the longer shipping through the sea passage remains disrupted, the deeper the economic scars will be for the world’s most populous country.
Since the US and Israel launched attacks on Iran over 100 days ago, the commodity supply shock in India has threatened to metastasise into a financial malaise as well. Inflation has edged higher while public finances have been strained by higher subsidy costs for fuel and fertiliser. As the country’s import bill has climbed, its currency has come under sustained pressure. The rupee fell to a record low against the dollar last month. Capital has also taken flight. As of early June, foreign ownership of Indian shares tumbled to a 10-year low. In recent weeks, India’s stock market capitalisation has been surpassed by Taiwan and South Korea, though valuations have been volatile.