Iran-Israel Conflict Threatens Stability of Indian MSMEs

Why in the news?

The ongoing Iran-Israel war is disrupting supply chains, increasing freight costs, and negatively impacting exports, posing significant challenges for India’s micro, small, and medium enterprises (MSMEs).

Impact of West Asia Conflict on Indian MSMEs:

  • The escalating conflict between Iran and Israel poses challenges for India’s micro, small, and medium enterprises (MSMEs), crucial for various sectors like textiles, handicrafts, and automotive components.
  • MSMEs contribute approximately 45% to India’s total exports and about 30% to its GDP, employing 110 million people.

Supply Chain Disruptions:

  • Key transit routes in West Asia, such as the Strait of Hormuz and Chabahar port, could face disruptions, affecting supply chains and driving up freight costs.
  • The automotive sector may experience shortages of raw materials and components, hindering startups reliant on investments from West Asia.

Iran-Israel Conflict Threatens Stability of Indian MSMEsDecline in Exports:

  • The textile export sector is already feeling the impact, with a 23% decline to $34.40 billion in FY24 compared to $35.55 billion in FY23.
  • Orders are being cancelled, and disruptions in trade with Europe and Russia are expected, affecting exports of textiles, electronics, gems, pharmaceuticals, and agricultural products.
  • Industry leaders warn that the stress on larger companies will ultimately trickle down to smaller MSMEs, increasing freight prices and insurance costs, thereby straining the overall sector.

Efforts Taken to Bring Peace between Israel and Its Neighbours:

  • Oslo Accords (1993): US-facilitated peace process milestone; stalled since.
  • Abraham Accord (2020): Agreement between Israel, UAE, and Bahrain; US mediation.
  • I2U2 (2021): Coalition of India, Israel, USA, and UAE; focuses on maritime security and infrastructure.
  • United Nations: Advocates for a two-state solution; promotes peace efforts through various agencies.
  • Arab Peace Initiative (2002): Saudi proposal for normalised relations with Israel in exchange for withdrawal from occupied territories.
  • India’s Role: Supports two-state solution; maintains diplomatic relations; provides humanitarian assistance to Palestinians.

Associated Article:

https://universalinstitutions.com/understanding-the-israel-iran-crisis-a-comprehensive-analysis/