Downside risk to India's GDP estimates following Rata Sea crisis

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MUMBAI: Trade in South Asian countries will be seen as the most severe as the Houthi attack has affected shipping in the Red Sea. Apart from the increase in the distance of transportation of goods by sea, the freight rate will also increase. The Red Sea or Suez Canal is an important route.

If the current disruption to shipping continues for a long time, it is likely to have a negative impact on India's economic growth outlook, said a report by Fitch.

If the disturbance in the Red Sea continues, not only will there be a downward revision in our estimates for India and Bangladesh, we will also see a decline in the Asia economic growth rate forecast for 2024, said BMI, a unit of Fitch Group.

These matters are of concern as India and Bangladesh are expected to perform well in the current year in terms of economic growth rates, but both countries are vulnerable to night sea disturbances.

The Red Sea is directly connected to the Suez Canal, which significantly reduces the sea distance between Asia and Europe. 12% of global trade is done through this route.

The crisis has affected the movement of goods and increased freight rates, resulting in inflationary risks around the world. Imported goods will become more expensive in India.

The Department of Financial Services has been instructed to ensure that exporters have easy access to credit to keep trade volatility under control.

Prices for large containers have tripled since the crisis began. The report noted that changing shipping routes to avoid the night sea would not only reduce global trade but also increase shipping costs, which would have a direct impact on economic activity.

India's exports are being affected and particularly agricultural commodities are being hampered as Indian ships have to use the Red Sea route to Europe.

The government wants to ensure that the impact of the Rata Samudra crisis is limited to exports of agricultural commodities so that agricultural income does not fall, government sources said earlier.

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