Effect of Ukraine-Russia conflict on Indian economy
Category
Stock Market Tremors
The Russia-Ukraine conflict has been continuing and persistent since February 2014 over geopolitical considerations, and the situation has now turned perilous. Among Asian markets, Indian markets took the worst of the damage. All of the sectors indexes are down 3.5-5.5 %, with auto, bank, FMCG, oil & gas, metal, IT, power, and realty all in the red. The BSE midcap and small cap indexes are both down by more than 5%. In fact, in the first hour of trading, the market capitalization of BSE-listed businesses was reduced by $103 billion.
Current impact on Indian Economy
Tensions between Ukraine and Russia are primarily to blame for the present increase in crude petroleum prices. For the first time since 2014, Brent crude oil prices reaching above $105 per barrel today i.e. 24th February, 2022. WTI hit $99.43. This comes after Russian President Vladimir Putin dispatched soldiers to Ukraine's eastern region. Rising oil prices are terrible news for India's economy, as the country imports majority of its fuel. The Russia-Ukraine conflict has had a significant influence on both Indian families and policymakers. 90 % of India's sunflower oil imports comes from Ukraine and Russia combined. With it now, benchmark crude prices have now increased by more than 50% in the last year. Crude oil prices are expected to be in the $70-75 per barrel range in fiscal year 2022-23, according to this year's Economic Survey.
According to Tapas Strickland of National Australia Bank, "Given the significance of Russia and Ukraine to energy, hard commodities, and soft commodities, Russia/Ukraine tensions present both a probable demand shock (for Europe) and, more crucially, a far greater supply shock for the rest of the globe." According to the US Energy Information Administration (US-EIA), Russia produced 12.5% to 13% of world crude oil, accounting for about half of total crude oil production in the Organization of Petroleum Exporting Countries (OPEC) region in the Middle East (West Asia). Most budgetary projections in India could become obsolete if petroleum prices stay at current levels, or worse, rise even more, as the Indian government could face a trinity of economic issues on the fiscal (it will have to slash taxes), inflation, and current account front.
The impact of a military conflict between Russia and the United States on energy costs will be substantially greater than crude oil prices alone. Western Europe is also largely reliant on Russian natural gas supplies (40 %, according to Reuters), and a supply disruption, as is anticipated in the aftermath of a military confrontation, will add to the price pressure on energy expenses in Europe. This is almost likely going to add to global inflation. This is unfortunate news for India once again.
How would this affect India's overseas trade?
Russia invading Ukraine and a bigger battle ensues including the US and other NATO members, the US and other advanced countries are imposing economic restrictions on Russia. These restrictions frequently apply to countries who trade with an aggressor which may disrupt the flow of fuels and threaten energy security for purchasers hundreds of kilometres away.
According to statistics from Iman Resources, India purchased 1.8 million tonnes of thermal coal from Russia in 2021, down from 2.5 million tonnes in 2020. Russia's proportion of India's thermal coal imports dropped from 1.6 % to 1.3 % in 2021. In 2021, India bought 43,400 bpd of oil from Russia, accounting for roughly 1% of its total imports. About 0.2% of Russia's natural gas exports go to India. GAIL (India) Ltd signed a 20-year contract with Gazprom in 2018 to import 2.5 million tonnes of LNG per year.
While the impact on present commerce may be minor, a conflict and the resulting sanctions might stymie India's aspirations to expand its economic and investment ties with Russia. "Improving trade and economic cooperation between India and Russia is a top priority for both countries' political leaders, as evidenced by revised targets of $50 billion in bilateral investment and $30 billion in bilateral trade by 2025," according to a brief on India-Russia economic relations on the Indian embassy's website.
India-Russia Defence trade
India is Russia's largest consumer of defence equipment. India is, without a doubt, relying on Russia to improve its defence capabilities. Apart from the fact that the two countries have long had strong historical links.
The China Angle
India wants Russia to show restraint in the face of a confrontational China. When it comes to the Russia-Ukraine crisis, China is India's elephant in the room.
While Beijing and Moscow's developing ties do not bode well for New Delhi, India's decent, albeit tenuous, relations with Russia are also a source of embarrassment for Beijing. When confronted with Chinese aggression, India can rely on Russia to keep China at bay.
As a result, siding with Washington in this war will put an end to India-Russia ties for good. A conflict, as well as ensuing Western sanctions, might make Russia more reliant on China, something New Delhi does not want.
But it doesn't mean India can ignore the United States. The United States and India are still members of the Quad's crucial Indo-Pacific alliance, which aims to limit China's expansionist efforts. If India loses US support, Beijing is likely to become more confident in its aspirations.
India’s Stance on the Situation
India understands the value of its relationships with both the West and Russia. In this context, it aims to maximise every methods available to keep the situation from spiralling deeper into a quagmire that could escalate to a shooting war. While resolving this issue in the short- or even medium-term is unlikely, India will use its diplomatic capacity to contribute to the general level of peace, despite its lack of influence in Eastern European matters.