As the conflict in the Middle East continues to escalate, India is facing economic pressure from multiple areas including energy, aviation, and remittances from the Middle East. Experts warn that if the conflict persists for too long, remittances from the Middle East may significantly decline, further impacting India's economic and currency stability.
India is the largest recipient of remittances in the world, with remittances accounting for about 3.5% of GDP, which surpasses the economic share of exports to the U.S. Data shows that approximately 9 million Indians live in the Middle East, and the money they send back home is crucial for India's fiscal and current account balance. According to research by Citigroup, Indian expatriates living in Gulf countries contribute nearly 38% of India's remittance inflows. For example, from the total remittances of USD 135.4 billion in the fiscal year 2025, remittances from Gulf countries account for about USD 51.4 billion.
Potential Risks of Declining Remittances
Analysts point out that many Indian workers in Gulf countries are primarily engaged in industries such as oil services, construction, hospitality, and retail, which are particularly sensitive to geopolitical conflicts and disruptions in economic activity. If the situation worsens and local job opportunities decrease, the amount of remittances may also decline.
Oxford Economics' Chief Economist Alexandra Hermann stated, "If remittance inflows drop significantly, coupled with rising oil prices due to the conflict, India's external economic situation will deteriorate, and the rupee could come under pressure."
Long-term Impact of the Middle East Situation on India’s Economy
If the conflict lasts more than six months, Deepa Kumar, Head of Country Risk for Asia-Pacific at S&P Global Ratings, warned that India’s economy could be substantially affected. If the hostilities remain limited, remittances might experience short-term fluctuations, but the main impact might be concentrated on short-term employment contracts.
As Trump indicated, the US-Iran conflict might last longer than the expected four to five weeks, Citibank also pointed out that if the conflict prolongs, income opportunities for Indian expatriates will be under pressure, and remittance inflow will face greater strain. Nonetheless, some expatriates might remit funds back to India earlier due to heightened risk aversion, potentially bringing short-term positive effects.
Rising Energy and Aviation Costs
Apart from the remittance risks, India is also facing pressure from rising energy and aviation costs. Approximately 85% of India’s crude oil is imported, and with the Middle East conflict driving up international oil prices, the energy import bill might further swell. Meanwhile, airspace restrictions in the Middle East have also increased operating costs for Indian airlines.
Resilience of India’s Economic Growth
Despite facing multiple pressures, India's economy continues to demonstrate robust growth. Official data shows that in the quarter ending last December, India's GDP annual growth rate was 7.8%, higher than market expectations. The government has also adjusted the statistical framework for GDP to improve the accuracy of calculations.
Although India's economy has shown resilience in the short term, if the Middle East conflict continues to intensify, the multiple pressures from remittances, energy, and aviation costs may simultaneously emerge, adding more uncertainty to India's economic outlook.
