What’s at stake for India as Russia invades Ukraine?

As aerial sirens followed one another in almost every major city in Ukraine, including its capital, their echo was heard around the world. In addition to the humanitarian consequences of war, the world will also have to bear its economic costs.

Around 4,000 miles away in India, benchmark stock indices had their worst day in a year on Thursday. They fell 4.8%. Oil prices rose above $100 a barrel for the first time since 2014, perhaps India’s biggest macro challenge. This happened after Russia launched an invasion of Ukraine and carried out missile strikes on its infrastructure.

As the world’s third largest oil importer, India depends on other countries for more than 80% of its crude oil needs. The world’s benchmark crude oil price, Brent, hit $105 a barrel after yesterday’s events. This could drive up India’s oil import bill, worsening its external position.

Rising oil prices are worsening inflation in India, widening the current account deficit and putting pressure on the rupee. The rupee weakened by 1.5% to 75.65 against the dollar.

Bank of Baroda Chief Economist Madan Sabnavis estimates that a 10% rise in oil prices would lead to a 90 basis point increase in headline inflation,

A 10% increase in crude oil prices will increase India’s current account deficit by $15 billion or 0.4% of GDP, causing the national currency to depreciate, according to Sabnavis.

It could also force RBI to reconsider its dovish stance. While Indian businesses are already reeling from soaring input costs, rising oil prices and in turn rising fuel costs will aggravate the situation across the board.

Depending on the product category and type, up to 50% of an FMCG company’s commodity basket can be crude oil related. Crude oil and its derivatives are used in the manufacture of detergents, soaps and cosmetics.

Cement manufacturers, painters, airlines and tires will also be impacted.

Economist Yuvika Singhal tells us more about the consequences of the Russian invasion on the Indian economy in the short term

Russia and Ukraine are not India’s major trading partners. But some sectors and commodities could feel the heat.

Bilateral trade between India and Ukraine stood at $3.1 billion in 2021. India’s exports to Ukraine stood at $510 million, with pharmaceuticals accounting for 32% . Other exports include telecommunication instruments, iron and steel, agrochemicals, coffee, etc.

Last year, India imported $2.6 billion worth of goods from Ukraine, including $1.85 billion worth of vegetable oils, mainly sunflower oil. Ukraine alone accounts for 70% of India’s sunflower oil imports.

Any disruption in supply will cause sunflower oil prices to rise, as India meets over 60% of its edible oil needs through imports and sunflower oil accounts for 14% of India’s imports from India. edible oil.

Meanwhile, bilateral trade between India and Russia stood at $11.9 billion in 2021. India exported goods worth $3.3 billion and once Moreover, pharmaceutical products were the main export product with 542 million dollars.

Other major exports include electronics, iron and steel, tea, and automotive components. Last year, India’s imports from Russia amounted to $8.6 billion. The main imports were crude oil, petroleum products, coal, fertilizers, gold, precious stones and precious metals.

Russia is India’s largest arms supplier, supplying half of total arms imports. The United States and Europe have promised the toughest sanctions against Russia.

In addition to the impact on India’s economy and trade, the Ukrainian crisis has a direct impact on thousands of Indian citizens. More than 18,000 Indian students are studying medicine or engineering in Ukraine, which is around 24% of the total number of international students. A few hundred returned before Ukraine closed its airspace to civilians on Thursday.

From evacuating Indian students to dealing with inflation and other economic fallout from the fallout from the Russia-Ukraine crisis, the government has a rocky road ahead.
Source: Trade Standard

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