A background note can be accessed here: ILO on Employment Effect of Middle East Crisis
The ILO warns that escalating conflict in the Middle East could trigger large-scale employment disruptions through energy prices, trade volatility, and migration shocks. How exposed is India’s labour market architecture to such externally driven employment shocks?
India is exposed to Middle East shocks, but not fragile in the way smaller remittance-dependent economies are. The Gulf channel remains important. India received USD 118.7 billion in remittances in 2023-24, and RBI survey data cited by the Department of Economic Affairs (March 2025) places the UAE’s share at 19.2 percent, behind the US at 27.7 percent. This points to meaningful exposure while also indicating that remittance flows are not tied exclusively to the Gulf.
A key strength of India’s labour market is its capacity to absorb labour-market disruptions. The Periodic Labour Force Survey (PLFS) 2023-24 reports a labour force participation rate of 60.1 percent, a worker-population ratio of 58.2 percent, and a usual-status unemployment rate of 3.2 percent for persons aged 15 and above. In a labour market characterised by relatively limited wage rigidity and a large informal and self-employment segment, adjustment often occurs through shifts in occupation, earnings and work arrangements rather than through prolonged open unemployment.
The more important question is the quality of reabsorption. Workers affected by external shocks may find employment relatively quickly, yet often under weaker conditions, including lower earnings, weaker employment security and more volatile incomes. That is where the policy challenge lies. India needs stronger mobility support, easier access to credit and basic social protection so that economic resilience is accompanied by greater income stability.
The analysis highlights how conflict-driven increases in fuel and logistics costs can transmit into broader economic instability and job losses. How should India balance inflation management with employment protection under such geopolitical stress conditions?
Under an escalating Middle East conflict scenario, India’s inflation challenge would emerge primarily from the supply side. Higher fuel, freight and logistics costs can gradually feed into food prices, manufacturing expenses, transport costs and household budgets. This creates a complex environment for monetary policy.
A very tight monetary response may help contain inflationary pressures, but it can also weaken economic activity. Higher borrowing costs can constrain MSMEs, postpone investment decisions, dampen consumption and reduce hiring in labour-intensive sectors such as transport, construction, retail, textiles and small manufacturing. If supply-driven inflation persists while demand slows sharply, the economy risks entering a stagflation-like phase characterised by weaker growth, softer employment conditions and continued price pressures.
The policy response, therefore, should be calibrated and phased. The RBI must remain credible in anchoring inflation while limiting unnecessary damage to productive activity. The government’s role is equally important. It can support confidence through efficient logistics management, credible supply-side measures, targeted relief where necessary, and clear public communication.
A successful response will depend on close coordination between monetary and fiscal authorities. India’s objective should be to contain price pressures, maintain economic confidence and preserve employment opportunities during a period of external uncertainty.
The report suggests that geopolitical crises increasingly generate labour market disruptions extending beyond directly affected regions. To what extent does India’s current employment strategy remain reactive rather than resilience-oriented?
India has managed previous labour market shocks reasonably well, but the nature of future disruptions calls for a stronger resilience framework. Geopolitical events can influence employment through multiple channels, including oil prices, trade routes, remittance flows, migration patterns and business sentiment. So, the issue is not only how effectively the system responds after a shock, but whether workers and firms have sufficient buffers before the shock arrives.
At the same time, India’s workforce strategy must respond to deeper structural changes in the global labour market. AI and automation are reshaping skill requirements across sectors, while international competition for talent continues to intensify. During this transition, many skilled and semi-skilled workers may continue to view more structured economies as offering clearer career progression, higher wages and more predictable living conditions. This reflects the global demand for Indian talent and highlights the need to strengthen the attractiveness of domestic opportunities.
The policy focus should be on creating conditions that encourage talent retention while also supporting return migration. Better-quality jobs, industry-linked skilling, recognition of overseas experience, smoother reintegration pathways, entrepreneurship support and suitable incentives can all contribute to that objective.
India should also diversify overseas labour destinations, strengthen labour agreements, improve portability of social protection and incorporate geopolitical risk assessments into employment planning. Workers should have credible pathways whether they choose to build careers in India, pursue opportunities abroad or return with international experience.