Kamal Ghorui
Rising oil prices can hurt the economy. But people feeling worried about money can be an even bigger problem
On Feb 27, the day before the Iran war started, the Sensex stock market index was at 81,287. Yesterday it fell to 77,566, a drop of about 4.5%. Other countries’ markets have fallen even more. South Korea’s Kospi is down almost 16%, and Japan’s Nikkei has dropped about 10.5%.
Markets are nervous because the Strait of Hormuz, an important sea route, is closed. This means ships carrying goods cannot go in easily, and oil and gas cannot come out. In South Korea, investors are worried because helium from Qatar, which is needed to make computer memory chips, may not arrive.
So far, India’s markets have done better than many others. But things could get worse if the war continues for many weeks. Higher oil prices can make many things cost more, such as transport and manufacturing. If prices rise too fast, the Reserve Bank of India (RBI) may raise interest rates to control inflation. But higher rates can slow spending and investment.
Foreign investors watch these things closely. If they get scared and start selling their shares, markets may fall more. Then ordinary Indian investors might feel poorer when they see the value of their investments go down.
Spending by people is very important for India’s economy. This includes buying everyday things like pens, clothes, cars, paying school fees, or going on trips. This year, such spending is expected to make up about 61.5% of India’s economy, the highest share in 15 years.
Three things helped people feel richer recently: tax cuts that left more money in their pockets, GST reductions that made many products cheaper, and low inflation. But if oil prices stay high and inflation rises again, people may start feeling the pinch.
When people see their investments shrinking and prices rising, they often become careful and stop spending much money. Economists call this the “wealth effect.”
India cannot do much to stop the war quickly. But it can help people stay calm and confident. The government must make sure there are no shortages of goods and that prices don’t suddenly jump.
Just like banks can fail if everyone panics and withdraws money at once, the economy can suffer if people lose confidence. So leaders must keep reminding people that India’s economy is strong, wars do not last forever, and oil and gas supplies will return. For now, the key is to stay calm and keep faith.
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