There are concerns in the government that the war in West Asia may impact the Indian economy the way the Covid-19 pandemic did.
The country’s reliance on imports from the Gulf region to meet its energy needs may make the Iran war as disruptive as the Covid pandemic six years ago, Bloomberg reported, citing government officials.
The conflict has the potential to derail India from its growth trajectory that would pave the way for the country to become a developed nation by 2047.
The government has already taken various measures to limit the impact of the war, but such measures will also affect its revenue collection.
Similar to the Covid-19 era, the government is planning to introduce a Rs 2.5 lakh crore credit guarantee scheme to help Indian businesses bear the shock of the disruption from the war.
India is the third-largest oil consumer and imports 90 percent of its gas from the Middle East. According to experts, even if the war ends soon, it is going to take years to bring the supply of oil and gas from the region to pre-war levels.
Various energy facilities in the region have been damaged in the war. Though oil prices have climbed down from the peak of $120 per barrel at the height of the war, they are still about 45 percent higher than pre-war levels.
The Finance Ministry has mapped out multiple scenarios, including one that assumes crude oil prices average $120 a barrel for the full year, the report said.
Anticipating the impact of high energy prices, a surge in inflation, and a weak rupee, several rating agencies have already reduced the growth forecast of the Indian economy in the last one month.
Though the government has not revised its FY27 growth estimate of 6.8-7.2 percent yet.
During the Covid-19 pandemic, the government had announced the Emergency Credit Line Guarantee Scheme (ECLGS).
As industries across sectors were struggling to start production during that time because of a liquidity crunch after a months-long lockdown, the government had given credit support of about Rs 3.62 lakh crore.
In view of the energy crisis, the Centre has already cut taxes on petrol and diesel, and shielded domestic airline operators from high jet fuel prices in order to keep inflation fears in check.
While this move will give relief to consumers and allow oil marketing companies to benefit, it will weaken one of the most crucial sources of revenue for the government.
