In response to the escalating attacks on cargo ships in the Red Sea, the Indian government is actively exploring a range of strategies to cushion the blow on its exports. According to a government official, potential measures include subsidizing Indian exporters to counteract the surge in shipping costs and insurance premiums. Additionally, diplomatic engagements with the US-led coalition are underway to ensure the secure passage of commercial vessels navigating the Red Sea.*
Challenges in the Agricultural Sector:
The official underscored the pressing concerns surrounding the impact on Indian exports, particularly in the agricultural sector, which relies heavily on the Red Sea route for shipments to Europe. With a focus on averting adverse effects on farm income, the government is actively exploring avenues to support exporters. The proposed measures include collaboration with the US-led coalition and the consideration of direct subsidies to alleviate the financial strain on Indian exporters.
Impact on Agricultural Exports:
India’s agricultural exports to Europe, valued at $2.28 billion from April to November 2023, encompass a diverse range of commodities, including fruits, vegetables, coffee, and rice. The nation is deeply alarmed by the periodic attacks on commercial vessels by Houthi rebels in Yemen, a situation exacerbated following the Israel-Hamas conflict in October.
Significance of the Red Sea Route:
The Red Sea route serves as a vital channel for approximately 12 percent of global trade, making the recent spate of attacks a matter of global concern. India’s exports to Europe through the Suez Canal include a wide array of products such as food items, apparel, and electronics. In terms of imports, crude oil stands out as a predominant commodity.
Ajay Srivastava, founder of the think-tank GTRI, estimates that around 50 percent of India’s overall merchandise trade with Europe and North Africa, worth $106 billion and $98 billion in exports and imports, respectively, may pass through the Suez Canal. This dependence poses substantial risks, particularly impacting shipments of low-end engineering products, steel, and essential commodities like rice and garments.
Concerns about rising shipping costs have been conveyed by exporters to India’s commerce ministry. In response, the commerce ministry has communicated these apprehensions to the finance ministry. The attacks have compelled freight companies to choose longer routes around Africa or wait at nearby ports, contributing to the escalation of shipping costs.
As India grapples with the challenges posed by the Red Sea crisis, the government is actively seeking comprehensive solutions to safeguard its exports and economic interests. The delicate balance between economic stability and global geopolitical dynamics remains a focal point for Indian authorities.
