The Department of Economic Affairs’ assessment of the Indian economy underscores that persistent geopolitical tensions, particularly those unfolding in the Red Sea, pose significant challenges for India.
The review points out that these tensions have further intensified the already sluggish global trade growth experienced in 2023.
“This reinforces the need to lower logistics costs and invest in product quality to hold on to and expand market share in areas where India has an advantage,” the review suggested.
In the initial advanced estimates of national income for the fiscal year 2023-24, the report reveals a projected moderation in the share of exports in GDP compared to the previous fiscal year.
This shift is attributed to a global demand slowdown, resulting in decreased demand for India’s exports.
The report further warns of potential risks stemming from ongoing geopolitical tensions and a recent surge in shipping costs due to rerouting to avoid security threats in international waters.
The associated risks include the potential inflationary impact, particularly concerning energy costs.
Specifically, the report references the Iran-backed militant group Houthis’ attack on shipments in the Red Sea.
This incident has compelled numerous nations, India included, to redirect their cargo away from troubled routes, opting for longer and more expensive alternatives through the Cape of Good Hope in South Africa.