Friday 27 / June / 2025
New Delhi: The limited trade exposure to Israel and Iran, coupled with proactive engagement on infrastructure and technology, ensures that the ongoing conflict does not impact India’s economic ambitions. As the world navigates an increasingly unpredictable geopolitical landscape, India offers a rare blend of economic resilience and policy foresight, anchoring its role as a stable force in the global economy.
The global economy in 2025 continues to be clouded by geopolitical volatility, tariff tensions, and region-specific conflicts. Yet, amid the storm, India stands out as an exception, demonstrating resilience and stability in both economic performance and external trade. The deepening crisis in West Asia, particularly between Israel and Iran, has had little to no visible impact on India’s economic trajectory or its export performance. Supported by robust fundamentals and prudent policymaking, the Indian economy has not only withstood external shocks but also shown encouraging growth signals across sectors.
Indian Economy Remains Steady Amid Global Uncertainty
Despite the global uncertainty stemming from geopolitical conflicts, trade restrictions, and financial tightening in developed economies, the Indian economy continues to expand steadily. According to the latest data, India’s GDP growth in Q4 of 2024–25 has remained strong, signalling the continuation of a resilient growth path. The economy has benefited from a confluence of factors such as macroeconomic stability, effective fiscal management, and growing domestic demand.
Foreign Direct Investment (FDI) has reached a three-year high in 2024-25, reflecting strong investor confidence in India’s long-term potential. In the current year, 2025-26, the April FDI inflows were at USD 8.8 billion, manufacturing and business services accounted for half of the gross FDI inflows. Simultaneously, India’s merchandise exports have touched an all-time high in 2024-25, contributing positively to the current account and boosting industrial production. India’s exports grew at 2.7% in the month of May 2025, showing significant resilience despite global headwinds. Inflation, a key concern for many economies, has eased significantly in India, falling to a seven-year low due to well-managed food supplies, lower core inflation, and the Reserve Bank of India’s calibrated policy stance.
GST collections also hit an all-time high in May 2025, underlining robust consumption and formal sector expansion. On the capital markets front, Indian equities have performed steadily despite external pressures, supported by domestic inflows and improving corporate earnings. As India enters the new fiscal year, expectations of a good monsoon, rising rural demand, and improved credit flows to consumers and producers are poised to reinforce growth momentum.
Private Sector Gains and Rural Boost Reinforce Momentum
India’s private sector activity surged in June 2025, hitting a 14-month high, a clear indication of expansion in the services and manufacturing sectors. The manufacturing Purchasing Managers' Index (PMI) reached 58.4, while the services PMI climbed to 60.7 — a 10-month high in June 2025. This uptick is attributed to strong domestic demand, increasing export orders, and favourable cost conditions for inputs.
Enterprises across both sectors reported not only improved sales and higher new export orders but also increased hiring, a sign of expanding production capacities and confidence in business prospects. With inflationary pressures softening, firms are better positioned to maintain pricing power while offering competitive goods and services globally.
In parallel, the rural economy is also showing promising signs. By June 20, 2025, Kharif sowing had increased by 10% over the same period last year, reaching 13.2 million hectares. The enhanced progress of the monsoon has particularly benefitted crops like rice and pulses, ensuring greater income support for rural households. While cotton sowing has slightly declined, the broader trend points toward an encouraging agricultural season.
Strong Outlook for 2025–26 Amid External Headwinds
S&P Global Ratings recently upgraded India’s GDP growth forecast for FY2025–26 to 6.5%, citing favourable macroeconomic conditions such as a normal monsoon, declining global oil prices, and improved financial conditions. The report also notes that India’s growth will continue to be driven by domestic demand, both consumption and investment, even as global exports face a slowdown due to weak external demand.
While concerns remain over the sluggish global trade environment, India’s well-diversified export portfolio and growing services trade offer a cushion. Additionally, the government’s continued push toward infrastructure investment, ease of doing business, and Make-in-India initiatives are expected to strengthen the domestic industrial base and improve export competitiveness.
No Impact of West Asia Conflict on India’s Exports
Despite the escalated hostilities between Israel and Iran, there has been no significant impact on India’s exports to West Asia. This continuity can be attributed to India’s well-managed port infrastructure, diversified export destinations, and strong bilateral mechanisms.
Concerns over crude oil price volatility, often linked to Middle Eastern conflicts, have also been downplayed. Analysts believe that short-term fluctuations in oil prices are unlikely to have a major impact on India’s macroeconomic stability, especially since India maintains adequate strategic reserves and benefits from hedging practices. These are temporary, event-driven fluctuations, they are unlikely to alter the long-term trajectory of India’s energy or trade policies.
Limited Trade Exposure to Israel and Iran
A closer look at India’s bilateral trade data further confirms that India’s overall economic exposure to the Israel-Iran conflict remains limited. India’s total trade with Israel and Iran during 2024–25 stood at approximately $3.7 billion each — a modest fraction of India’s overall trade basket, which crossed $824 billion last fiscal 2024-25
India’s exports to Iran primarily include rice, engineering goods , and petroleum products. On the other hand, exports to Israel are more diversified into gems and jewellery, engineering goods and electronic goods. On the import side, India majorly sources electrical machinery and precious stones from Israel. Imports from Iran are primarily agricultural and natural, comprising fruits, minerals & oil, and chemicals. Given the relatively narrow base of imports and exports with these countries, any disruption, even if it occurs, would have only a limited effect on India’s aggregate trade flows.
Strategic Engagement and Regional Connectivity
India’s relations with both Israel and Iran are not just transactional but strategically nuanced. In April 2025, India signed a revised agreement with Israel for agriculture cooperation, focusing on advanced technologies, R&D, and productivity enhancement. The agreement aims to establish more Centres of Excellence and bolster water-use efficiency and food processing , steps that have the potential to raise farmer incomes and improve product quality.
With Iran, India’s strategic interests are most visibly tied to the Chabahar Port Project. In May 2024, India and Iran inked a 10-year agreement for the operation of the Shahid Beheshti terminal at Chabahar Port. Under this arrangement, India Ports Global Limited (IPGL) will invest approximately USD 120 million in equipment and operations, and an additional USD 250 million in credit lines for other mutually agreed-upon infrastructure projects.
This partnership holds immense potential for improving regional connectivity, especially toward Afghanistan and Central Asia, and strengthening India’s presence in the International North-South Transport Corridor (INSTC). Chabahar’s growing significance offsets any perceived short-term trade disturbances.
Conclusions
In conclusions, India's macroeconomic stability and foreign trade momentum remain intact, despite the geopolitical turbulence in West Asia. The country has managed to insulate itself from the adverse external environment through diversification, strategic autonomy, and consistent economic reforms. With rising private sector activity, strong agricultural output, resilient exports, and record-breaking GST collections, India is well-positioned to continue its growth path in FY2025–26.
