Economic Impact of Russia-Ukraine crisis on India
Published by Sharekhan Education | March 9, 2022
Economic Impact of Russia-Ukraine crisis on India
Amit Pathak | Sharekhan Education
Wars are terrible and breed uncertainty all around, more so in a globalized world like ours. Wars directly lead to a loss of wealth, and more importantly, the lives of those directly involved.. Make no mistake, the Russian and the Ukrainian economy will be dented due to the ongoing conflict, but the war will also impact economies around the world. Let us discuss how the ongoing war will impact the Indian economy.
The Rise in Crude Oil Prices
Russia is a major crude oil and natural gas exporter in the world. And naturally, the imposition of economic sanctions by the USA and EU on Russia has resulted in a reduction of the available supply of oil in the global economy. Brent crude has already breached the 105 $/barrel mark for the first time since 2014. India, being a net importer of oil, is being negatively impacted negatively by a rise in oil prices.
Macroeconomic Challenges
In addition to affecting freight movement, an increase in oil prices will also cause an increase in the cost of food items like vegetables, fruits, pulses, oil, etc. According to a report by the RBI, a $10/barrel increase in oil price raises inflation by 49 basis points, which, in turn will lead to an increase in fiscal deficit by 43 basis points as a percentage of GDP. If the conflict continues, the exchange rate will be affected, and the rupee may depreciate further.
Import Worries on Edible Oil
Russia and Ukraine together account for 90% of India’s sunflower oil imports. In 2021, for instance, India imported 1.89 million tones of sunflower oil in 2021 – 70% of which was from Ukraine. Ukraine has not sent a single shipment in the previous month. India, being one of the major exporters of pharmaceutical products to Ukraine, may have to experience a reduction in the pharmaceutical export business.
Defense Equipment
India relies on imports for critical defense equipment from Russia. But given the current situation, it may face delayed deliveries. The sanctions on Russia by the West can put India in a tight situation where they face delays in deals and even cancellation of potential future deals.
Gold – a Hedge against Geopolitical Risks
The Russian attack on Ukraine caused gold to surge to its highest level since 2020, triggering a move to safe-haven assets. We “expect that gold prices break through $2,000/oz in the coming days if the conflict further escalates,” Bernard Dahdah, senior commodities analyst at Natixis SA, wrote in a note. “A quick correction will ensue once the conflict’s intensity winds down.”
In the interest of mankind (and the global economy), let us all hope and pray that the Russia-Ukraine crisis de-escalates as soon as possible.
In the meantime, If you would like to understand more about the art of investing, then go ahead and register for one of our free Power Money Workshops. And join our investing education program Stock Investor to polish your investing skills. Not only do we teach you the step-by-step process of identifying fundamentally sound stocks, but you also learn how to invest like a professional. So, come and experience it yourself!
