West Asia War: Shockwaves ripple through India’s economy

India is facing potentially its most severe external economic shock in decades as the ongoing West Asia conflict disrupts energy supplies, inflates input costs, and rattles supply chains across nearly every major industry, from automobiles and fast-moving consumer goods to pharmaceuticals, medical devices and aviation.

India imports 88% of its crude oil and 50% of its natural gas from West Asia. With the Strait of Hormuz partially closed, supply has tightened sharply, freight costs have surged, and industrial clusters across the country are scrambling to keep production lines running.

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Auto sector warns of production halt

India’s auto and auto component industry is among the hardest hit. Piped Natural Gas and Liquefied Petroleum Gas, critical to casting, forging and painting operations, are in short supply across major manufacturing hubs including Pune, Nashik, Bengaluru, Hosur, Chennai, Haryana and Ludhiana.

“There are some pockets across the country where there is no supply at all,” said Vinnie Mehta, Director General of the Automotive Component Manufacturers Association.

Carmakers are also seeing a rise in input costs and export shipments are taking longer, costlier routes around the Cape of Good Hope. Mahindra Group CEO Anish Shah issued the starkest warning yet. “When inventories start reaching critical levels, we will have to stop production,” he said. Passenger vehicle production has not been impacted so far, but industry executives warned the situation could deteriorate sharply if the conflict drags on.

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FMCG: The cost of keeping food on shelves

Fast-moving consumer goods companies are grappling with a sharp rise in packaging costs. Packaging can account for as much as 15% of total manufacturing cost, and crude-linked materials such as PET resin, HDPE and specialised laminates have risen anywhere between 30% and 50%.

“Prices of everything that is linked to crude oil in India have gone up except for petrol and diesel. Packing materials, chemicals, and coal prices have gone up by 20 to 25% from pre-war time,” said Shrikant Kanhere, MD and CEO of AWL Agri Business.

For Lahori Zeera, the impact has already hit the bottom line. “Key raw materials such as PET resin have seen a sharp increase of nearly 50% in the last few weeks, pushing packaging costs to near all-time highs. At current levels, this is leading to a 6 to 7% decline in gross margins,” said Co-founder and COO Nikhil Doda. Selective price increases from April 1 will only partially offset the spike.

Aviation faces a double blow

The aviation sector has been badly hit by a combination of surging Aviation Turbine Fuel prices and a near-collapse in Middle East flying schedules, which account for over 80% of international revenue for carriers such as Akasa, Air India Express and SpiceJet. Oil Marketing Companies raised ATF prices from April 1 in line with international benchmarks, with international airfares expected to stay elevated heading into the peak summer season.

A weakening rupee is compounding the pain. The majority of airline payments, including lease rentals, fuel and overseas charges, are denominated in dollars, meaning every rupee lost to depreciation adds directly to costs.

Pharma: MSME manufacturers under severe pressure

The West Asia crisis is beginning to hit India's medicine supply chain hard, with prices of key pharmaceutical raw materials rising by as much as 200% to 300% in just 15 days. While medicine prices in India are regulated, the surge in input costs is squeezing manufacturers, particularly smaller units, to the point of threatening production viability.

The price spike has hit active pharmaceutical ingredients, solvents, excipients and packaging materials simultaneously. Paracetamol, one of the most commonly used medicines in Indian households, has seen its raw material cost rise from Rs 250 to Rs 450 per kg in just 15 days.

"Unprecedented 200 to 300% price hikes in APIs, solvents, excipients and packaging materials threaten MSME survival and essential medicine supply," said Sanjay Sharma, spokesperson of the Himachal Drug Manufacturers Association. The association, which represents around 500 pharma manufacturing units, has filed an urgent representation with the Union health ministry seeking government intervention, including a price ceiling on key APIs and activation of the Essential Commodities Act 1956.

The association has also flagged shortages of LPG used for industrial boilers, warning of potential labour migration if the situation worsens. Existing production contracts have already become unviable for many smaller manufacturers as input costs have outpaced the prices at which they are contracted to supply.

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Medical devices: Input costs hit hard

India's medical devices industry is facing a sharp rise in input costs as tensions in West Asia and disruptions around the Strait of Hormuz begin to filter into supply chains, raising concerns over potential increases in hospital procurement costs if disruptions persist. Industry estimates show that prices of critical plastics have risen by nearly 50%, while packaging costs and diesel-based power expenses have increased by over 20%. At the same time, prices of piped natural gas used for manufacturing processes have nearly doubled amid supply constraints.

“There is currently no shortage of syringes or other medical disposables, and there is no cause for public concern. However, we are seeing substantial price increases, longer lead times and elevated freight costs,” said Rajiv Nath, Forum Coordinator, Association of Indian Medical Device Industry.

Manufacturers have so far managed shipment delays of one to three weeks through buffer stocks, but industry bodies warn that extended disruptions could expose the sector to opportunistic pricing by dominant global raw material suppliers. The current situation has already forced price revisions of 10 to 20% across several products to sustain operations.

Centre steps in, but industry wants more

Responding to mounting pressure, the Centre on April 2 announced a temporary full customs duty exemption on key petrochemical inputs including polypropylene, polycarbonate and PVC, until June 30, 2026.

“Raw materials such as polypropylene, ABS, polycarbonate and PVC resin form the backbone of medical consumables manufacturing, and their exemption provides much-needed relief to domestic manufacturers, especially MSMEs,” said Himanshu Baid, Managing Director, Poly Medicure.

“The ongoing West Asia conflict is having an impact on energy supplies, freight costs and the timely movement of products,” said Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance. "Our primary focus remains on ensuring the uninterrupted supply of medicines, which is critical to public health and health security."

Industry bodies indicated that further support may be required. AiMeD has reiterated its request for temporary GST relief on key input materials and faster refunds to ease working capital constraints. "Reducing GST on inputs would provide cumulative support and improve the competitiveness of India's medical devices sector globally," said Rajiv Nath.

Pharma exports under threat

Beyond the domestic front, rising freight costs and escalating geopolitical tensions along key Gulf shipping routes are emerging as a serious risk to India's pharmaceutical exports to the Middle East, with industry estimates warning of potential losses of Rs 2,500 to 5,000 crore if shipments face prolonged disruption. Pharmexcil has flagged that key routes including the Red Sea, Strait of Hormuz and Gulf shipping corridors are facing risks of rerouting and delays, particularly concerning for temperature-sensitive pharmaceutical products.

The bigger fear: food on the table

Perhaps the most alarming dimension of the crisis is its potential reach into Indian agriculture. Around 60% of India's ammonia, a key fertiliser input, comes from Saudi Arabia and Oman. India is also short by 25 to 30 LPG cargoes, a fuel critical for household cooking.

"The biggest issue staring at India is agriculture and its exposure to oil shocks. Input costs for farmers will go up, and we will see food inflation. That will have a direct impact on growth," said Arnab Basu, Chief Industries Officer, PwC India.

G. Krishnakumar, former CMD of BPCL, called it "the biggest crisis the world has faced since the 1973 oil crisis," warning that oil marketing companies would eventually be unable to keep absorbing costs without cutting infrastructure investment. "If you keep absorbing costs, you cannot invest in infrastructure. Somewhere, it will have to give," he said.