Iran-Israel conflict: Finmin, MEA keeping tabs on West Asia developments; policymakers gear up for any exigency
The biggest worry for India is securing oil supplies at reasonable prices, as the country imports over 85% of its requirements. The ministries of finance and external affairs are in touch and together keeping an eye on the developments. “We are closely monitoring the situation,” another top policymaker told ET.
A third official said financial sector regulators are also keeping tabs and will take the necessary steps as and when required.
Iran Saturday night launched a drone missile attack on Israel. This was in response to a suspected Israeli strike on its consulate in Damascus on April 1 in which seven Iranian Revolutionary Guard Corps personnel, including two generals, were killed.
New Delhi has called for immediate de-escalation and a return to the path of diplomacy. The development comes as India gears up for general elections from April 19 to June 1. Independent economists said the government will need to remain vigilant.“Policymaking might have to temporarily return to crisis mode,” said Abheek Barua, chief economist, HDFC Bank.A permanent elevation in oil prices would hit growth and push inflation higher, given that the retail price line for petrol and diesel cannot be held beyond a point and a significant pass-through is inevitable if the conflict is prolonged, he said.
Oil companies are expected to absorb the rise in crude prices until the elections are over.
“Higher oil prices as a result of rising geopolitical risks is a negative for India. It is an adverse term of trade shock, which increases upside risk to inflation and downside risk to growth,” said Sonal Varma, MD chief economist, India and Asia ex-Japan, at Nomura. “At this stage, we are in a wait-and-watch mode.”
Barua said the latest escalation could hurt trade, apart from an exit to safe havens.
“Supply routes both for exports and imports to and from the West will be affected and this could impinge on trade,” he said. “Risk off in the financial markets and a flight to the safety of gold and the dollar will weigh on external capital inflows.”
MARKETS ON EDGE
The 30-share BSE benchmark fell 793 points on Friday to settle at 74,245 after reaching a lifetime peak of 75,124.28 on Tuesday. The rupee depreciated 7 paise to close at 83.38 against the dollar on Friday.
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