Overview
The war in the Middle East is delivering a simultaneous shock to two key drivers of employment in India - Gulf-based labour income and overseas demand for low- to mid-skilled manufactured goods. For decades, steady work in Gulf countries alongside robust global appetite for labour-intensive Indian products such as footwear, leather items and glassware provided reliable earnings for many families. Since the outbreak of hostilities, that dual support has frayed, with returning migrants unable to match Gulf pay at home and factories facing weaker orders and higher costs.
Personal impact on returning workers
Until January, Mohammad Qureshi, 32, was employed at a jewellery shop in Saudi Arabia earning roughly 30,000 rupees a month - about $311 - savings that enabled him to build a modest home and contribute to his sister's wedding expenses. After the Iran war curtailed his plans to go back to the Gulf, he is now working at a family tea stall in Kanpur, earning barely a third of his previous salary and waiting for circumstances to permit a return.
Qureshi, who lives with his mother and elder sister, described the contrast in living standards between his time in Saudi Arabia and his current situation at home. "Life in Saudi was easy and the money was good," he said. "Life is difficult here. I pray the war ends soon so we can go back." His story illustrates the immediate earnings gap faced by many migrants who find domestic opportunities unable to replace Gulf incomes.
Industrial response and regional stress
Industrial centres such as Kanpur are already showing the strain. At Kings International, a leather-processing unit that supplies saddlery to overseas markets and sports goods to retailers including Decathlon, owner Taj Alam describes a squeeze from both rising operating costs and weakening orders. The conflict has pushed up fuel, gas, logistics and shipping costs, compressing margins at a time when demand has softened.
Alam said his facility, which has the capacity to handle about 200 hides a day and once employed in excess of 500 workers, is operating at roughly half capacity with about half of its workforce currently engaged. He signalled little appetite for investment while uncertainty persists, saying, "The outlook will remain bleak until the Strait of Hormuz stabilises. Why invest when the future looks uncertain?"
Kanpur is responsible for about one quarter of India's reported $6 billion in annual leather exports and directly or indirectly supports roughly 500,000 jobs in the sector, according to Mukhtarul Amin, vice chairman of the Council for Leather Exports. In response to current conditions, businesses in the leather industry say they are cautious on hiring and capital spending while they focus on retaining workers and minimising layoffs.
Gulf labour market and hiring trends
Out of nearly 19 million Indians employed overseas, about 9 million are believed to be in the Gulf. World Bank estimates cited in reporting show Gulf economic growth slowing to 1.3% in 2026 from 4.4% in 2025, a deceleration that threatens jobs in those economies. Recruiters and placement agencies report that hiring decisions have become more tentative since the U.S.-Israeli strikes on Iran, with some employers delaying recruitment and families growing reluctant to bear migration costs.
At a local placement firm, Hayat Placement Services, recruiter Gautam Bhatnagar said the pipeline of opportunities has diminished markedly. "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 comprehensive official tallies for how many Indian nationals have left the Gulf since the conflict began. A foreign ministry official told reporters that about 1.1 million Indians - including passengers, workers and other travellers - returned from the region between the start of hostilities on February 28 and the end of April. The ministry did not respond to follow-up queries cited in reporting.
Remittances and regional vulnerabilities
Remittances have been an important stabiliser for households in states such as Kerala, where many families rely on money sent from the Gulf. Thomas Cherian, 50, who spent 18 years with a Saudi construction firm, returned home on leave in December expecting to go back in March. He said the project he worked on was halted and about 600 Indian workers were laid off. If Cherian cannot return by the end of June, his visa will lapse.
Kerala's state agency for non-resident Keralites, NORKA Roots, said there has not yet been a mass repatriation, but warned that prolonged conflict and resulting financial stress in Gulf economies could trigger large-scale returns and add pressure to the state's already stretched job market. "There has been no mass return so far," Ajith Kolassery, CEO of NORKA Roots, said, while noting the risk of a future wave of repatriations if conditions worsen.
Officially reported remittance flows stood at $102.5 billion for April-December 2025, up from $92.4 billion in the same period a year earlier. Data for January-March has not been released. The Reserve Bank of India did not respond to queries about the Iran war's effects on remittances.
Macro outlook and labour market dynamics
India's broader economy continues to expand at close to 7% and headline urban unemployment is reported at 6.6%, but economists and recruitment experts warn that hiring intentions are softening, wages are stagnating and job quality is deteriorating for the 6 to 7 million young people entering the labour force annually. The magnified challenge of providing adequate non-farm employment to a population with nearly 400 million people aged 15-29 remains a core policy concern.
K.E. Raghunathan, national chairman of the Association of Indian Entrepreneurs, characterised the current environment as more than a normal cyclical slowdown. "This is not just a cyclical slowdown," he said, pointing to structural shifts such as automation and tighter migration conditions that are narrowing traditional employment channels across manufacturing, IT and overseas work.
Official unemployment rose to 5.2% in April from 4.9% in February, while urban youth joblessness remains substantially higher at nearly 14%. Economists also point to underemployment as a persistent problem, with many educated young people working in low-paid or insecure roles that do not align with their skills.
Ram Singh, an economist at the state-run Indian Institute of Foreign Trade, said the combination of weaker Gulf job prospects, export uncertainty and rising costs is likely to dampen new hiring in manufacturing, logistics and trade-related sectors. He warned that slower wage growth, especially for low-skill and routine white-collar roles that are vulnerable to AI-driven automation, could push firms toward greater use of contractual, gig and informal labour arrangements.
Implications
Policymakers and businesses face the immediate task of managing an influx of returning workers and the knock-on effects for domestic demand, while keeping an eye on firm-level margins and investment plans in industries exposed to global trade and logistics disruptions. Without corrective measures or a quick return to stability in the Gulf and shipping lanes, hiring and wage dynamics are likely to remain subdued, with consequences for consumption and social cohesion.
($1 = 96.3725 Indian rupees)