India's job engine strains as Middle East war hits remittances and trade

The war in the Middle East is squeezing two pillars of Indian employment, forcing Gulf-based workers home and crushing demand for the country’s manufactured exports, from leather goods to glassware.

For decades, work in the Middle East and global demand for labour-intensive manufacturing in sectors such as footwear and garments gave a generation of Indians stable, and in some cases lucrative, incomes.

Now, the foreign conflict has dealt a double blow to the economy, with returning migrant workers stuck in India and unable to find similar pay in their home towns, heightening the risk of social unrest as unemployment grows.

Until January, Mohammad Qureshi worked at a jewellery shop in Saudi Arabia, earning about 30,000 rupees ($311) a month, saving enough to build a small home and help pay for his sister’s wedding.

Now, the 32-year-old earns barely a third of that working at his cousins’ tea stall in the Indian city of Kanpur, after the Iran war disrupted his plans to return to the Middle East. He lives with his mother and elder sister, waiting for a break to go back to work in the Gulf.

“Life in Saudi was easy and the money was good,” Qureshi said, standing beside his cousins as customers gathered for tea.

“Life is difficult here. I pray the war ends soon so we can go back.”

India’s economy is still growing at nearly 7 per cent and urban unemployment stands at 6.6pc, but economists and recruiters warn of weak hiring, slow wage growth and worsening job quality for the 6 to 7 million young Indians entering the workforce each year.

If unattended, the strain could hurt consumption and fuel unrest like the protests in north India last month, they warn.

The pressures are visible in industrial hubs such as Kanpur in Uttar Pradesh, India’s most populous state.

At Kings International, a leather factory supplying saddlery overseas and sports goods to Decathlon, owner Taj Alam said the Middle East conflict has driven up fuel, gas, logistics and shipping costs, squeezing profits just as demand weakens.

Alam said his factory, which can process 200 hides a day, and once employed over 500 workers, is now running at about half capacity and half its workforce, leaving little incentive to expand or hire.

“The outlook will remain bleak until the Strait of Hormuz stabilises,” he said.

“Why invest when the future looks uncertain?”

Kanpur accounts for roughly a quarter of India’s $6 billion annual leather exports and directly or indirectly employs about 500,000 people, according to Mukhtarul Amin, vice chairman of the Council for Leather Exports.

He said businesses in the sector remain cautious about hiring and investment, even as they try to retain workers and avoid layoffs.

Gulf jobs under threat

Out of nearly 19 million Indians working overseas, about 9 million are in the Gulf. World Bank estimates show economic growth in the Gulf region slowing to 1.3pc in 2026 from 4.4pc in 2025, putting jobs at risk.

Recruiters say hiring has become more uncertain since the US-Israeli strikes on Iran, with employers delaying recruitment and families hesitant to pay migration costs.

At Hayat Placement Services in Kanpur, recruiter Gautam Bhatnagar said opportunities had dried up at home and abroad.

“Earlier, we used to place five to 10 candidates every month,” he said.

“Now we are lucky if we can place even one or two.”

There are no official figures on how many Indian workers have left the Gulf.

However, a foreign ministry official told reporters last month that about 1.1 million Indians, including passengers, workers and other travellers, had returned from the region between the start of hostilities on February 28 and the end of April. The ministry did not respond to subsequent queries.

Uncertainty is also rippling through southern Kerala, where Gulf remittances have long shaped the local economy.

Thomas Cherian, 50, spent 18 years working for a construction firm in Saudi Arabia before returning home on leave in December. He was due to return in March, but the company halted its project and laid off about 600 Indian workers, he said.

If he cannot return by end-June, his visa will lapse.

“There has been no mass return so far,” said Ajith Kolassery, CEO of NORKA Roots, an agency of the state’s Non-Resident Keralites Affairs Department.

“But if the conflict continues, financial stress in Gulf economies could lead to large-scale repatriation, adding pressure to Kerala’s already strained job market.”

Remittances from overseas Indians stood at $102.5 billion in April-December 2025, up from $92.4bn a year earlier. Data for January-March is yet to be released.

The RBI did not respond to queries on the impact of the Iran war on remittances.

Multiple strains across the labour market

For Prime Minister Narendra Modi’s government, the risks extend beyond the economy.

India has nearly 400m people aged 15 to 29, and generating non-farm jobs for them remains one of its biggest challenges despite rapid growth.

“This is not just a cyclical slowdown,” said K E Raghunathan, national chairman of the Association of Indian Entrepreneurs.

“AI, weak global trade and tighter migration conditions are narrowing traditional employment avenues across manufacturing, IT and overseas labour.”

India’s unemployment rate rose to 5.2pc in April from 4.9pc in February, but urban youth joblessness remains far higher at nearly 14pc. Economists also flag persistent underemployment, with many educated young people stuck in low-paid or insecure jobs that do not match their skills.

Ram Singh, an economist at the state-run Indian Institute of Foreign Trade, said weaker Gulf job prospects, export uncertainty and rising costs were likely to slow fresh hiring in manufacturing, logistics and trade-linked sectors.

“The bigger worry is weaker wage growth, especially in low-skill and routine white-collar functions vulnerable to AI-automation,” he said.

“With a surplus labour market and firms seeking flexibility, this could mean more contractual, gig and informal work.”