Impact of Russia Ukraine War on Indian Economy

Russia Ukraine War UPSC: Relevance

• GS 2: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

Russia Ukraine tension: Context

• The ongoing Russia Ukraine tensions have impacted the global trade significantly. The supply chains have been hit all around the world and experts are of the opinion that Indian economy will be negatively impacted due to such disruptions.

Impact of Russia Ukraine War on Indian Economy: Key sectors to be impacted

Crude oil

• Oi forms a major component of our import basket from Russia. The sanctions can sour the price to a new level, resulting into higher prices of petroleum products domestically.
• The rise in fuel prices could further aggravate the issue of inflation in the country.
  • Notably, Economic Survey 2021-22 has pointed 3 challenges to Indian economy—Resurgent COVID waves, supply chain disruptions and inflation.
• Due to rise in fuel price our import bill will sour and so will our Current Account Deficit.

Exports

• If the fuel price remains at high levels for a long time, prices of other commodities which India imports will also rise in the international market.
• Due to this pressure on global economy, demand may be impacted which could affect our exports too.

भारतीय अर्थव्यवस्था पर रूस यूक्रेन युद्ध का प्रभाव

Agriculture

• Russia and Ukraine are the major global suppliers of wheat, corn and sunflower oil.
• India imports most of its sunflower oil from Ukraine.
• Considering the demand of oil in India, the price rise of sunflower oil will further increase inflation in India.
• A sustained rise in oil and food prices would have adverse impacts on Asia’s economies, manifested through higher inflation, weaker current account and fiscal balances, and a squeeze on economic growth.
• In such a scenario, India, Thailand and the Philippines will be the most impacted countries, while Indonesia would be a relative beneficiary.

Banking

• Till date, banking sector has remained resilient to the ongoing conflict.
• The indicators of financial health—profitability, asset quality and capital adequacy—has risen to a new peak, thus showing a strong banking scenario.
• Moreover, there is adequate liquidity of Es. 7 lakh crore and appropriate cash balance of Rs. 2.8 lakh crore, which should insulate the banking sector from the ongoing crisis.

Steel

• The expected shortfall in international markets because of the ongoing war is likely to keep steel prices at buoyant levels in the near term, which will benefit Indian steel players.
• Also, export opportunities will allow leading steel companies to operate at higher capacity utilisation rates.

Impact of Russia Ukraine War on Indian Economy: Conclusion

• Some sectors like oil and gas and both ferrous and non-ferrous metals can gain through this trend, while the ones which depend on oil as a key input, like chemicals, fertilisers, gas utilities, refining and marketing, will have a negative impact.

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