Business News / India may suffer a loss of Rs 2.50 lakh crore - result of the Red Sea crisis

Business News: The Red Sea crisis is not only a cause of trouble for American and European countries but has also become a headache for India. In the current financial year, India may see a reduction of about 30 billion dollars i.e. about Rs 2.50 lakh crore in its total exports. In fact, container shipping rates have increased due to threats to cargo ships in the Red Sea. Exporters have started stopping their shipments.

A preliminary assessment by the Research and Information System for Developing Countries, a New Delhi-based think tank, means Indian exports will decline by 6.7 per cent, based on the total of $451 billion last fiscal year. Sachin Chaturvedi, director general of the think tank, said that the crisis in the Red Sea will really affect India's trade and may see further decline. The government has not released any official estimates on the impact of the Red Sea crisis on Indian exports.

How much did the shipments decrease?

According to Clarkson Research Services Ltd., a unit of the world's largest ship broker, the number of ships passing through the Suez Canal is about 44 percent less than the average for the first half of December. He said ships with combined tonnage of about 2.5 million gross tons passed through in the week to January 3, compared with about 4 million tons at the beginning of last month. Yemen's Iran-backed Houthi militants have targeted ships passing through the Red Sea with missiles in recent weeks. The Houthis say they are pursuing all ships that have ties to Israel.

Government is discussing

For India, the Red Sea is a major shipping route to Europe, the East Coast of the US, the Middle East and African countries. Prime Minister Narendra Modi's government is in discussions with export promotions councils to find ways to protect trade through the route, according to two officials familiar with the matter. Last week, India sent a warship to the Arabian Sea where the Liberian-flagged ship said it was hijacked off the coast of Somalia. The Indian Navy said it “successfully salvaged” the ship.

Tremendous increase in shipment freight

According to Ajay Sahay, director general of the Federation of Indian Export Organizations, which comes under India's trade ministry, the threats have forced Indian exporters to stop about 25 percent of outbound shipments going through the Red Sea. He said that in many cases, both buyers and exporters are renegotiating contracts to renegotiate rising freight charges. The spot rate to ship goods in a 40-foot container from Asia to Northern Europe is now above $4,000, according to cargo booking and payments platform Freightos.com, 173 percent higher than just before the diversion began in mid-December. . Rates for a 40-foot container from Asia to the East Coast of North America have increased 55 percent to $3,900.

Inflation may increase

India commonly exports a variety of goods including petroleum products, grains and chemicals using the Red Sea Route. According to government data, exports in the current financial year are already down by 6.5 per cent in the April to November period compared to a year ago. Disruptions in the Red Sea could impact margins in India's oil and auto sectors, Madhavi Arora, chief economist at Emkay Global Financial Services Ltd., wrote in a note published on December 22. But the bigger concern could be inflation, which is above the central level. The bank's comfort zone since the end of 2019 is 4 percent.