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Ukraine-Russia Conflict: How Indian Economy will be affected?

Updated: Apr 21, 2022

On February 24, Russia invaded Ukraine. The event is set to be the worst possible setback for a pandemic hit global economy. The result of this tension was seen in the stock market in just 5 minutes of the invasion. The stock market crashed completely. The continuing conflict has also harmed supply systems that were already in bad shape. India's direct influence will be restricted to the extent of commerce between the two countries.

Currency markets throughout the world have been extremely volatile since the start of the war. Currency depreciation has resulted from a mixture of conflict and sanctions, and the rupee has not been spared. The major impact will be seen on Food Industry, Oil Industry and Agricultural Industry. Those doing business with Russia are concerned about the payment issue. Exporters are in a bind as a result of Russia's exclusion from SWIFT. To make matters worse, shipping companies are hesitant to transport products to Russia. As counter-parties to these transactions, all entities in other countries are affected in an attempt to harm Russia. India can enter into a rupee-rouble arrangement at the government level, but getting roubles for exports may not be as appealing to private companies.

The RUSSIAN CRUDE OIL is its biggest economic weapon helping it sustain this war. Right now, we are continously seing a oil price hike . As oil prices approach US$130 per barrel, we should be ready for a price hike in every sector. As we know that inflation is directly proportional to the increase in oil prices. Higher oil prices are expected to have a direct or indirect influence on the costs of living. Although the Russian discount on Russian oil may bring some relief in terms of oil prices. If oil prices remain this high for a lengthy period of time, the global economy will suffer greatly. If the crisis lasts longer than three months, demand will drop and supply-side constraints will endure. For a short time, inflation may have been held at bay. Even though worldwide petroleum prices were rising even before the Ukraine crisis, elections in Uttar Pradesh, Punjab, Goa, Manipur, and Uttarakhand necessitated keeping gasoline prices unchanged.

With Ukraine be the “Food Bowl” of the world and with so many countries dependent on Ukraine and Russia for supply of grains, a global food shortage is expected to hit with conditions worsening day-by-day. Luckily for India, as we say “Jai jawan, Jai kisaan”, we have enough food in the storage to sustain for next three years. In this scenario, if India could capatalize on its grain producing capabilities, we can see a boost in the agricultural export and economy of India. India, although being better equipped, is not completely immune to such disasters. For producing these crops, a very important role is played by chemical fertilizers. Russia is the biggest exporter of these Chemical Fertilizers. With the imposition of Sanctions by the west, the supply of these fertilizers are set to be limited, resulting in increase of the cost of fertilizers. Farmers' minimum support prices (MSP) are also expected to rise, accordingly.

As oil prices approach US$130 per barrel, we should expect higher bond rates and a weaker Indian rupee in the short term, but an increase in oil company stock prices in the long run. Although the Russian discount on Russian oil may bring some relief in terms of oil prices.

Now consumers must buy things made in the India boosting Indian Businesses and Indian Economy, due to the rise in the import taxes.

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1 Comment

Well thought and penned. Let us pray global and local peace prevails.

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