US Media: Due to the chaos in the Middle East, India's economy has sharply declined within a month

What does Goldman Sachs’ continuous downgrade of India’s economic growth forecast reflect in terms of deep-seated concerns?

[Global Times Special Correspondent Zhen Xiang] “India says the US-Israel conflict may affect economic growth and expand the fiscal deficit.” Bloomberg reported on the 28th that the Indian Ministry of Economic Affairs released the latest monthly economic review report last Saturday, stating that the “uncertainty surrounding India’s economic outlook has increased” due to the tensions in the Middle East. The report noted that the outlook remains unclear in the short term, as rising input costs and supply constraints pose downside risks to economic expansion, but the government has not offered a precise forecast.

The Ministry of Economic Affairs stated in the report that the increase in oil import costs, rising logistics expenses, and a decrease in exports to the Middle East could squeeze profits for some Indian businesses. The department also indicated that signs of a slowdown in economic activity have already appeared. Bloomberg’s senior economist Abhishek Gupta predicted that the shock to India’s balance of payments in the next fiscal year could exceed $130 billion.

The report also emphasized the need for moderate policies and structural reforms to sustain economic growth, stating that “continuous monitoring and targeted policy interventions are still crucial to mitigate recent risks and maintain macroeconomic stability.” The Indian government has already introduced several measures to alleviate the impact of the tensions in the Middle East, including allocating $6.2 billion to stabilize the economy.

Last Monday, Indian Prime Minister Modi expressed concerns about the potential impact of the Middle East tensions on the Indian economy during a speech. He stated, “The severe international situation caused by this war may last for a long time… We must be prepared to cope with the long-term effects.”

“The chaos in the Middle East has interrupted the ‘good news’ of India’s economic growth.” The American magazine Forbes reported on the 26th under this title that in the weeks before the US-Israel attacks on Iran, officials in New Delhi were immersed in a celebratory atmosphere. Some international media cited economists as saying that India’s GDP had surpassed Japan. However, just over a month later, India’s manufacturing activity has dropped to its lowest level in nearly four and a half years. Notably, as early as 2014, India set a goal to increase the manufacturing sector’s share of GDP to 25%. Yet, more than a decade later, the contribution of Indian manufacturing to the economy is still only around 17%. The Forbes article argues that now, with the tensions in the Middle East driving up oil and fertilizer prices, India’s industrial transformation will only become more difficult, and New Delhi may need to “fully enter a stop-loss mode.”

Additionally, Reuters noted that foreign investors are pulling out of Indian bonds and stock markets at a record pace, driven by soaring oil prices, which have heightened market concerns about rising inflation, casting a shadow over India’s growth prospects. Data shows that since the end of February, foreign investors have net sold Indian stocks worth $12.14 billion, marking the largest monthly outflow on record. Meanwhile, since the outbreak of the US-Israel conflict, Goldman Sachs has consecutively downgraded its forecast for India’s economic growth this year. Prior to the US-Israel attacks on Iran, Goldman Sachs estimated India’s economic growth rate at 7% for this year; on the 13th of this month, the forecast was revised down to 6.5%; and last Tuesday, it was further lowered to 5.9%.