Russia and Ukraine war Impact on India Economy & Inflation Index – All Details
Spread the love

On the 24th of February in 2022 Russia and Ukraine began a war that has impacted in the Indian Economy, resulting in negative effects on different sectors and aspects. At the United Nations (UN) meeting, India abstained from voting. India has held a neutral stance at this UN meeting. Forty-eight days have passed since the beginning of this conflict. In the next section, we’ll look at some of the key aspects of the conflict between Russia and Ukraine as well as its effects on India and its economy.

Crude Oil & Gold Prices Hike

Russia is among the biggest exporters of crude oil around the world in addition to the Russian invading of Ukraine has led to Brent crude oil prices climbing up to $130 per barrel. Currently, they are selling at or above (Agneepath Yojana) 100 dollars per barrel. The price of crude oil has increased by 20 percent since the conflict started. The effects of rising price of crude oil on the international front may have a knock-on result in terms of cost push inflation. The conflict has also affected India’s food oil market, as India imports more than 90 percent in sunflower oils coming from Russia and Ukraine in combination.

Delhi is too dependent in Moscow’s Security Umbrella

Dependence of the Indian government of Russia in defense has been well-documented, and is the main motive behind India’s ever-changing reaction to Ukraine crisis. More than 70 percent of India’s arsenal of defense equipment is attributable to Russia. In the case of Moscow, Delhi is its biggest arms importer, in addition, to India, Russia is the most important exporter of transfer of arms. Between 2000 and 2020 Russia was responsible for 66.5 per cent of India’s imports. Out of the $53.85 billion that was spent by India in that time on exports of arms, $35.82 billion was sent to Russia. The same time frame exports to India and the United States were worth $4.4 billion, and imports from Israel $4.1 billion. Due to India’s dependency upon Russia the Minister for Commerce and Industry Piyush Goyal has asked India’s startup companies to make themselves self-sufficient in defense and energy.

Although there has been a concerted attempt to decrease dependence on Russia in the last decade, it’s not likely that this will be the case in the near future. It’s also unlikely that India will ever be able to truly become self-sufficient in terms of security in the sense that it does not have the capabilities to make that happen. So, the comments of Minister Goyal are just aspirational, with little or no practical implications in the near future.

Silver Lining for India’s Food Exports

But, the conflict between Russia and Ukraine creates a new chance for a few Indian exporters of agricultural products, specifically in the fields of maize, wheat millet, millet, and processed food.

As the Ukraine-Russia conflict continues to unfold and the world is searching for Indian wheat to ease the enormous shocks that have occurred in supply chains that originate of Russia as well as Ukraine. Ukraine is among the top exporters of wheat when combined Russia and Ukraine share 25% of the world market. The ban on shipping from Russia will also open up increased chances in the market for Indian exporters of confectionery, nuts, pulses and fruits.

Since the prices of these commodities are hitting new levels and opening up opportunities for Indian traders and farmers. Up to June, no new wheat will be coming from the other major markets, like Australia, Pakistan and Brazil.

According to several reports, India is expected to export between 10 and 12 million tonnes in wheat to market that have been vacated through Russia as well as Ukraine. A regular monsoon this year will also boost the expansion of India’s rural economy. India However, maximizing the potential also depends on how fast the buyer-seller market develops and the improvement of the freight infrastructure.

Direct Foreign Investment Outflow

The consequences of all this could have a significant impact on India’s balance-of-payments. Because of the instability of the energy demand and the present difficulties with the import of coal, any rise in the price of crude oil will always result in an increase in import charges for the nation. If the war continues it will increase the current deficit on the balance of payments.

This issue is particularly acute In India as business is witnessing one of the largest outflows of institutional investors from foreign countries during this first period of. The risk of an U.S. Fed rate hike is a daunting mission for Reserve Bank of India. This could impact the rate of exchange. Due to the well-thought-out policies and the foreign exchange management strategies the rupee did not suffer any unusual pressure.

Short and Long-Term Mitigation Strategies

In the long term, India should reduce its dependence on fossil fuels to ensure that it doesn’t get trapped in the middle of conflict between Russia and the West and Russia at least not on the issue regarding energy security. India might adopt an approach that is multi-pronged to reach this objective. The states could consider providing special assistance to its vulnerable citizens to lessen the impact of the crisis currently. Additionally, India could strengthen the Indian banking system by addressing issues with asset quality and enhancing the balance sheets of banks.

In the end, India could transition towards more sustainable circular economies through the allocation of special economic zones (SEZs) to companies that are more eco-friendly. The government can also encourage the manufacturing industry to take advantage on the potential of”the “lucrative Indian market.” In the ideal scenario, manufacturers would tailor their products to meet the requirements of the Indian consumer in terms of price and quality, allowing each Indian to have an indigenously constructed “Indian electric vehicle.”