Thursday 22 / May / 2025
New Delhi: In an increasingly interconnected global economy, diplomatic and political moves between nations often have far-reaching consequences beyond mere bilateral relations. One such example is India’s recent boycott of Turkey, initiated in response to Ankara's support for Pakistan during Operation Sindoor. This instance carries a heavier economic weight for Turkey, which is already struggling with chronic inflation, a volatile currency, and declining investor confidence.
Dwindling economic environment in Turkey
Turkey’s economy over the past few years has been marred by instability and high inflation, despite occasional spurts of growth. The post-COVID recovery brought some respite in 2021 with an impressive GDP growth rate of 11.4%, largely attributed to pent-up demand and an export boom. However, this momentum quickly waned as macroeconomic challenges resurfaced. In 2022, GDP growth slowed to 5.5%, followed by 4.5% in 2023 and an estimated 3.0% in 2024. Projections for 2025 indicate further deceleration to around 2.7%.
High inflation has been one of the most persistent problems. In 2022, Turkey faced a staggering inflation rate of over 72%, fuelled by unorthodox monetary policies such as cutting interest rates despite rising prices. Although inflation slightly moderated to 54% in 2023, it remained a significant burden on consumers and businesses. In 2024, inflation rebounded to around 61%, and while 2025 projections suggest a decline to approximately 33%, it is still among the highest globally.
Foreign Direct Investment (FDI) also mirrored this volatility. Turkey attracted around USD 13.67 billion in FDI in 2022, but this dropped to USD 10.64 billion in 2023 due to heightened investor concerns over legal uncertainties, currency risks, and political interference. Though FDI slightly rebounded to USD 11.3 billion in 2024, this level is insufficient to stabilize or meaningfully stimulate the economy. The trend reflects a strong rebound in 2021 followed by a gradual decline, indicating structural weaknesses and policy inconsistencies.
Turkey’s volatile trade scenario
Exports have historically been a cornerstone of Turkey’s economy, supported by its strategic location between Europe and Asia. Key markets included Germany, the UK, Iraq, and the United States. However, Turkey's import dependency, especially for energy, machinery, and intermediate goods has resulted in recurring trade deficits as Turkey’s economy is heavily reliant on imports for industrial and consumer needs, the trade deficit in 2024 is estimated at USD 20 billion.
Weakening investment environment in Turkey
Turkey’s investment climate has been described as turbulent. Private investment, which accounts for approximately 10% of GDP, has been dampened by high interest rates, currency volatility, and weakening institutional credibility. Major sectors such as real estate, manufacturing, and fintech have faced headwinds from reduced credit availability and inconsistent economic policies. Although Turkey continues to pursue FDI through incentives and reforms, investor confidence is low. Regulatory unpredictability, political instability, and concerns over judicial independence have deterred long-term foreign investors.
Recent economic challenges
Turkey is grappling with a multi-dimensional economic crisis. The Turkish lira has lost significant value over the past three years, contributing to imported inflation and public discontent. The central bank’s erratic policy changes have undermined monetary credibility. Political turmoil, especially after the 2023 elections, and natural disasters like the 2023 earthquakes have added further strain. Moreover, Turkey’s large current account deficit, falling forex reserves, and increasing reliance on short-term capital inflows have exacerbated its financial vulnerabilities.
India’s economic engagement with Turkey, while not massive, is symbolically and strategically significant. The recent boycott has already begun to show effects across trade, tourism, and retail. India has halted imports of Turkish marble worth over ₹3,000 crore (USD 360 million) annually, a sector where Turkey had a strong foothold in India’s construction and real estate industries. Imports of Turkish apples, previously a growing niche, have also ceased. Turkish retail brands such as LC Waikiki have been removed from Indian e-commerce platforms like Ajio and Flipkart. Tourism has been hit hard. Travel agencies in India report a 60% drop in bookings for Turkish destinations, especially for weddings and film shoots segments that bring high-margin revenues. Turkey was emerging as a key destination for Indian weddings, often generating several million dollars per event. The loss of this segment is a major setback. The longer the boycott continues, the greater its impact on Turkish businesses dependent on Indian demand. Furthermore, the boycott could dissuade Indian conglomerates from considering Turkey as an investment destination, further isolating Ankara economically.
Turkey’s bleak tourism outlook
Tourism plays a pivotal role in the Turkish economy, contributing to employment, foreign exchange reserves, and regional development. Following the COVID-19 pandemic, Turkey made a strong recovery in tourism. In 2023, the sector generated USD 61 billion in revenues, marking an 8.3% increase from the previous year. However, this momentum has been threatened by geopolitical concerns, including tensions with India. India has historically been a growing market for Turkish tourism, particularly among affluent Indian travellers and Bollywood productions. However, the recent 60% drop in Indian travel bookings due to the boycott may erase a significant portion of anticipated revenue in 2025. About 3 lac (0.3 million) Indian tourist reach Turkey every year.
The withdrawal of Indian tourists from Turkey has significant implications for Turkey's economy, particularly in sectors heavily reliant on international tourism. India has historically been a substantial source of foreign exchange earnings through its outbound travellers, contributing to Turkey's vibrant tourism industry, which includes hospitality, transportation, retail, and cultural sectors.
A decline in Indian visitors can lead to decreased revenue, reduced occupancy rates in hotels, and lower sales for local businesses catering to tourists. Furthermore, this downturn may adversely affect employment within the tourism sector, potentially leading to job losses and decreased income for those dependent on tourism-related services. The broader economic impact could also extend to reduced foreign currency inflows, affecting Turkey's balance of payments and overall economic stability.
Impact of withdrawal of Indian students from Turkey Universities
The withdrawal of Indian students from Turkish universities can have several implications for Turkey's higher education sector and its broader diplomatic and economic relations. Indian students constitute a significant portion of the international students in Turkey, contributing to the diversity and vibrancy of Turkish universities.
Their departure may lead to decreased enrolment numbers, impacting university revenues, research collaborations, and cultural exchange programs. Additionally, a decline in Indian students could diminish Turkey’s reputation as an attractive destination for international higher education, potentially affecting future student recruitment from other countries. Economically, Indian students contribute to local economies through living expenses, internships, and part-time work, so their withdrawal can have a localized economic impact in university towns.
Turkey’s economic landscape is already burdened with structural weaknesses, ranging from high inflation and trade deficits to shaky investor confidence and political instability. The recent Indian boycott, although primarily symbolic, has tangible effects on trade, tourism, and investment. As India tightens its economic disengagement with Turkey, the ripple effects will likely deepen the crisis in key Turkish industries.
This episode underscores the importance of geopolitical neutrality in international relations, particularly for nations like Turkey, which are heavily dependent on foreign trade and tourism. Unless Ankara takes steps to rebuild diplomatic trust and restore economic fundamentals, the road ahead may grow even more turbulent in the coming times
By Dr S P Sharma, Renowned Economist, former Gen Secy PHDCCI
