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Economic Highlights
New
Delhi, 16 October 2023
India GDP Rises, Arms Sale Up
ISRAEL WAR MAY HURT: IMF
By Shivaji Sarkar
Indian
economic parameters are improving. But would thesebe able to retain the
14-month high Index of Industrial Production growth (IIP) and keep inflation
under check amidst the fires of the Gaza-Israel war?
The global
economy is under stress as it was just about getting used to the Russia-Ukraine
war and had even stabilised the oil prices. In a week, oil prices surged by 4
percent. If the oil prices increase by 10 percent, the International
Monetary Fund (IMF) says, the global economic growth is estimated to come
down by 0.15 percent and global inflation will increase by 0.4 percent. The
disruptions led by war will spike geopolitical tensions and create turbulence
for financial stability.
This
week the IMF raised India’s GDP growth forecast for to 6.3 percent from
6.1 percent amid prediction of world growth to slow down to 2.9 percent in
2024. It can also be slower. Higher oil prices would also add about 0.2
percentage points to global inflation -- holding it near 6 percent. It could
force the Reserve Bank of India (RBI) to firm up interest rates as growth
slows.
As a
relief, in September, the Consumer Price Index (CPI) data fell to 5.2 percent
from 6.83 percent in August and 7.44 percent in July. The IIP reached a record
10.3 percent as manufacturing rises, capital goods rise by 12.6 percent and
infra construction by 14.9 percent in August.If global slowdown accentuates as
it is now being reassessed, Indian growth may slump. Higher oil and other
prices will impact price index.
Additionally,
India’s stock market is taking the hit daily. This means investment is falling.
India’s defence expenses are likely to grow as it is the second largest
importer of arms in the world, ahead of Egypt, Australia and China. The
government says it has no other option but to arm itself against China, which
continues to grow in military and economic power. Israeli exports to India are growing.
The Indians are authorised by Israel to manufacture and export Israeli-designed
drones and ammunition across South-East Asia. It is believed that the laser
systems currently being developed in Israel will eventually also reach India.
The
figures portray an interesting picture. As Israel needs more arms, including
drones, would it be able to continue its supplies to India? Its multiple
security system, Iron Dome, itself has collapsed. The war in Ukraine helped it
rake in high profits through the sale of Israelis arms. Israel, the 10th
largest arms exporter, sold $9 billion last year, up from $8.3bn in 2020,
amounting to three per cent of global military spending. Now these exports, if
hit for domestic Israel needs, could possibly change the dimensions of Ukraine
war.Germany, France, and the US will now have to maintain supplies to Ukraine.
They may earn tonnes of cash.
This is not
soothing for India. It calls for India to upgrade its systems and to earmark more
expenses, calling for higher tax revenue. India may have to review its own Rs
16000 crore defence exports, including Pinak and other missile systems. In
FY2022-23, Indian merchandise exports to Israel amounted to $7.89 billion,
while Israeli exports to India were $2.13 billion.
Besides,
India also has substantial investments, including at Haifa port in Israel.
According to data, the cumulative overseas direct investment from India during
April 2000 to May 2023 was $383 million. Many Indian firms such as Tata Consultancy
Services (TCS), State Bank of India, Jain Irrigation, Sun Pharma, Infosys, Tech
Mahindra, Adani, and Wipro have either acquisitions or investments in Israel.
Recently,
India chalked out a clever trade route plan to Middle East-Europe via Haifa,
where the Adani group has large funding, through ship, rail, road involving
UAE, Saudi Arabia, Israel, Greece. Would it succeed in the present melee?
The Middle
East Monitor says the arms industry in Israel is harmed if there are no
large-scale military operations against the Palestinians. The Israeli assaults
on Palestinian civilians in the Gaza Strip in May 2021 got Israeli aviation
industry conclude a deal with a country in Asia for military drones worth $200
million. In 2020, of all global investments on the internet, a third was
directed to Israeli electronic companies. The Israeli arms industry works with
the support of the US and the EU and establishes near-normal relations with
repressive and far-right regimes from Eastern Europe and Africa to Brazil. The
war benefits it.
That is
not so with India. But Indians need to ponder over what the Nuvama
Institutional Equities says, “The private sector accounts for 60–70 per cent of
India’s total defence exports. The Israel-Hamas conflict, though a sad
reality for the people of the region, presents lucrative growth opportunity for
India’s defence exports.The escalation of this war may create opportunities for
India’s defence companies in the near-to-medium term as Israel is likely to
reach out to its allies (India, US, etc) to ensure ample stockpiles to fight
the war”.
So, if
India is becoming a tough arms exporter, the people need to rethink and
reassess the situation whether it is heading for a jingoist country. Should a
country head towards becoming so just for the benefit of some arms dealer and impose
tougher preventive laws? Is that a profit or a loss in social terms and is it
adhering to the Gandhian non-violent philosophy?
The
insight by Nuvama is revealing. India may harm itself more if it gets into an
arms-led economy. It warns, “While some companies exporting equipment to Israel
may benefit, other players (both PSUs and private) which procure raw materials
or have tie-ups with Israel Aerospace Industries, Elbit Systems or Rafael
Advanced Systems, may go through a hard time,” because Israeli priorities may
lead to supply chain bottlenecks, execution delay and possible breach of
agreements for Indian companies.
Bloomberg
estimates that if the war is not stopped in a few days, in phases it can
escalate to Lebanon-Syria, having Iranian militias, and then to Iran verging
into a larger global conflagration nearer India. Columbia Broadcasting expert
Peter Armstrong says the dust may not settle in a year!
For
India, in all these cases the direction could be the same, more expensive oil,
higher inflation, and slower growth, with the magnitude being different. The
wider the conflict, the more it becomes global, rather than being regional,
which is tougher for India.---INFA
(Copyright, India News & Feature Alliance)
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