Critical Analysis of Houthi Attacks’ Impact on Indian Economy

Critical Analysis of Houthi Attacks’ Impact on Indian Economy

Sectors Impacted:

1. Shipping & Maritime:

  • Negative: Increased insurance premiums (up to 150%), longer routes, and potential delays disrupt supply chains and raise costs for Indian exporters and importers.
  • Latest Data: According to Drewry Maritime Research, freight rates on the Red Sea-India route have increased by 20-30% due to the attacks (Jan 2024).
  • Mitigation: Exploring alternative routes (e.g., Cape of Good Hope) and diversifying trade partners.

2. Trade & Exports:

  • Negative: Reduced demand for Indian exports due to higher shipping costs, impacting sectors like textiles, pharmaceuticals, and engineering goods.
  • Latest Data: October-December 2023 trade data shows a 5% decline in exports to the Middle East compared to the previous quarter.
  • Mitigation: Focusing on regional trade agreements and exploring alternative export destinations.

3. Imports:

  • Negative: Increased import costs for essential goods like fertilizers (from the Middle East) and crude oil (potential price volatility), impacting manufacturing and agriculture.
  • Latest Data: Fertilizer prices in India have risen by 10% since the attacks began (November 2023).
  • Mitigation: Government subsidies and exploring alternative import sources.

4. Tourism:

  • Negative: Negative perception of security in the region could deter tourists, impacting coastal states like Kerala and Goa.
  • Latest Data: Tourist arrivals in Kerala dipped by 7% in December 2023 compared to the previous year.
  • Mitigation: Promoting domestic tourism and highlighting safety measures taken.

5. Energy:

  • Mixed: Potential rise in global oil prices could benefit domestic oil & gas producers, but also raise fuel costs for consumers and businesses.
  • Latest Data: Brent crude oil price has fluctuated between $80-$90 per barrel since the attacks began.
  • Mitigation: Increasing domestic oil production and exploring alternative energy sources.

Overall Impact:

  • Negative: The Houthi attacks have a moderate negative impact on the Indian economy, with the shipping, trade, and tourism sectors being most affected.
  • Latest Data: While the full impact is yet to be quantified, initial estimates suggest a potential GDP loss of 0.2-0.5% in 2024.

Critical Considerations:

  • The duration and intensity of the attacks will significantly influence the overall impact.
  • Government response and mitigation strategies can play a crucial role in minimizing the negative effects.
  • The global economic climate and other external factors can also influence the impact on specific sectors.

The Houthi attacks pose a significant challenge to the Indian economy. While the immediate impact is moderate, prolonged disruptions could have wider consequences. Continued monitoring, proactive mitigation strategies, and exploring alternative solutions are crucial to minimize the negative impact and ensure the long-term economic stability of India.

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