Red Sea crisis threatens India's exports, projected $30 bn decline

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Red Sea crisis threatens India's exports, projected $30 bn decline

Red Sea crisis threatens India's exports, projected $30 bn decline

Industry News
Jan 09,24

The preliminary evaluation, conducted by the New Delhi-based think tank Research and Information System for Developing Countries, implies a 6.7% decline in Indian exports, considering last fiscal year's total of $451 billion.

Red Sea crisis threatens India's exports, projected $30 bn decline

India is projected to face a reduction of approximately $30 billion in total exports for the ongoing fiscal year due to increased threats to cargo vessels in the Red Sea, resulting in a surge in container shipping rates and causing exporters to withhold shipments. The preliminary evaluation, conducted by the New Delhi-based think tank Research and Information System for Developing Countries, implies a 6.7% decline in Indian exports, considering last fiscal year's total of $451 billion.

Sachin Chaturvedi, the Director General of the think tank, noted, “The crisis in the Red Sea would indeed impact India’s trade and may lead to further contraction.” However, the government has not released official estimates regarding the impact of the Red Sea crisis on Indian exports.

The number of ships transiting through the Suez Canal has decreased by about 44% compared to the average for the first half of December, according to Clarkson Research Services Ltd. Vessels with a combined tonnage of approximately 2.5 million gross tons passed through in the week ending January 3, compared to about 4 million tons at the beginning of the previous month.

Yemen’s Iran-backed Houthi militants have targeted vessels in the Red Sea with missiles in recent weeks, impacting India's major shipping route to Europe, the US East Coast, the Middle East, and African countries. The Indian government, led by Prime Minister Narendra Modi, is in discussions with export promotion councils to safeguard trade through this route. India had also sent a warship to the Arabian Sea in response to a reported hijacking near Somalia’s coast, successfully rescuing the ship.

As a result of the threats, Indian exporters are holding back approximately 25% of outbound shipments through the Red Sea, with renegotiations of contracts to accommodate rising freight charges becoming common, according to Ajay Sahai, director general of the Federation of Indian Export Organisations. The spot rate for shipping goods in a 40-foot container from Asia to northern Europe has surged by 173% to over $4,000, while rates to North America’s East Coast have risen by 55% to $3,900.

India's usual exports, including petroleum products, cereals, and chemicals, are significantly affected by the disruption in the Red Sea route. The country has already experienced a 6.5% contraction in exports from April to November compared to the same period last year, according to government data. Analysts, such as Madhavi Arora from Emkay Global Financial Services, express concerns that the Red Sea disruption could impact margins for India’s oil and auto sectors and contribute to inflation concerns that have persisted above the central bank’s comfort zone since late 2019.

Source: Indiatimes