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How Iran vs USA Unrest Affected Indian Economy: An Insight

The bombarding of threats as well as counter-threats from Iran and the USA have created a spur of tension amongst most countries of the world.

These unfortunate developments haven’t come at the right time with the Indian economy that is currently at an all-time low, sub-five per cent GDP growth for the past two quarters and inflation overshooting the five per cent mark, driven by high prices of onion and pulses, communal feuds and rising unemployment. The country is suffering from inflation, and further downfall shall bring the country on the edge of a very devastating recession as pointed out by the Nobel laureate Abhijit Banerjee.

To understand how the feud between the two countries shall affect India, we need to delve slightly deep into the matter.

The only place where Iran, India and the USA have been seen collaborating as while they support the anti-Taliban government led by Ashraf Ghani in Afghanistan. Iran is the second-largest supplier of crude oil to India. On the other hand, India is one of the largest investors of Iran’s oil and gas industry.

The dispute shall undoubtedly affect the prices of the crude oil, but as far as availability is concerned the presence of other countries like Saudi, Venezuela, Iraq will cover up for the fall in supply. However, the continued increase in the price of the crude oil shall be problematic for the fiscal deficit of the country.

Not only this, but the consumer price index shall also witness a dip. Talking about trade, the trade relation between India and Iran has seen a dip of about 79 per cent since April to November during the current fiscal.

The government is trying to increase consumption and demand to revive the failing economy, but this shall do nothing but increase the inflation cause other repercussions. Cuts in the spending of the government might end in a pre-economic slowdown.

India has a massive trade imbalance with the Persian Gulf nations, due to the imports of oil from Iran. Indian export to Gulf nation in 2018-19 was worth USD 3.51 billion (about Rs 24,920 crore), while imports were valued at USD 13.52 billion (about Rs 96,000 crore).

Market benchmark Sensex tumbled 162 points on December 3, as global investors turned risk-averse after the killing of a top Iranian general by the US fuelled fears of a geopolitical conflict. Indian rupee (INR) fell sharply at 4 per cent against the US dollar (USD), alarmed by a surge in global oil prices to 71.77 at day’s low against the US dollar. The dispute had put pressure on the rupee value as well.

So it is evident that India shall face problems more than it is facing right now if the unrest between the two countries escalates any further or happen in future, and India being a neutral stance in these might just get caught in the middle.

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Palak Pandey

I am an aspiring civil servant with keen interests in politics , defence and histories . Want the world to be a place of trust and humanity , where one receives reliable information . Let peace prevail .

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