Updated February 24th, 2024 at 15:30 IST

India's capital goods, fertiliser sectors highly impacted by Red Sea crisis: CRISIL report

The Red Sea crisis is shaking up Indian industries, with capital goods facing high challenges while textiles remain relatively unscathed.

Reported by: Sankunni K
Red Sea crisis | Image:Unsplash
Advertisement

Red Sea disruption impact India: The ongoing conflict in the Red Sea, fueled by Houthi rebels in Yemen, has sent shockwaves through global trade routes, forcing ships to divert away from the Suez Canal. This disruption has cascading effects on various sectors of the Indian economy, according to a recent report by CRISIL.

Capital goods sector: High impact

The capital goods sector faces significant challenges due to delays in trade routes. Timely delivery of goods is crucial, and any disruption can lead to inventory build-up and operational inefficiencies. Engineering, procurement, and construction companies may struggle with order conversions and increased logistics costs, impacting overall business dynamics.

Crude oil: Medium impact

While India's crude oil imports remain largely unaffected, the escalation in geopolitical tensions has led to higher freight and insurance costs. Rising crude prices may affect the profitability of oil marketing companies, especially as tighter shipping markets impact exports to Europe.

Fertilisers: High impact

Middle East's fertiliser exports to India have been disrupted, with shipment timelines extended and freight costs increased. Import of key fertilisers like muriate of potash (MOP) from Jordan and Israel has been majorly affected, potentially impacting India's fertiliser supply chain.

Metals: Low impact

The steel sector, largely reliant on domestic supply, may experience minor disruptions in logistics costs for exports to Europe. However, overall impact is low, with most imports coming from East Asia. Base metals may see marginal increases in logistics costs, but no significant impact is anticipated.

Pharma: Medium impact

India's pharmaceutical industry, heavily reliant on export markets like the US and Europe, faces potential turbulence due to increased shipping surcharges and freight costs. While the impact is not yet pronounced, prolonged crisis may lead to margin deterioration and increased financial burden due to delayed deliveries.

Shipping: Medium impact

Global shipping freight rates have surged due to geopolitical issues, impacting vessels transiting through the Suez Canal. While shipping contracts may be affected by renewals, the elevated freight rates have compensated for additional operating costs.

Textiles: Low impact

India's textiles industry, focused on the domestic market, may see minimal impact from the Red Sea crisis. With weak export demand and buyers possibly absorbing higher freight costs, the industry is expected to weather the situation without significant struggle.

The Red Sea disruption poses varied challenges for Indian industries, with some sectors facing higher impacts than others. While certain sectors may experience short-term disruptions, others may see minimal impact due to their specific dynamics and market orientation.

Advertisement

Published February 24th, 2024 at 15:30 IST