How will the Russian-Ukrainian war affect the Indian economy?
The Russian invasion of Ukraine in February was the largest military offensive ever seen since World War II and could provoke a global economic catastrophe.
India had taken a neutral position, thanks to its historic relationship with Russia. The coalition, which dates back to the Cold War, includes a number of factions — communications, defense, nuclear power, and technology — making Russia an integral part of India’s nation-building process, especially at a young age.
However, this is unlikely to protect India from military damage of such magnitude. Especially since, in the context of the world, India, and Russia today find themselves closely linked to two other powers, China and the US.
This1. crisis has exacerbated global trade uncertainty and will affect oil and other commodities, according to Sunil Sinha, research director, and chief economist at India Ratings. India may not have significant trade with Russia, however, it will lose economically due to the supply disruption caused by Western sanctions.
Here are the ways in which India could suffer as a result of the Russian-Ukrainian war even without being part of it.
1.Prevent raw Russian shipping
Responding to the US bans on all oil and gas exports from Russia, Brent crude prices rose to about $ 130 per barrel last week, up 43% from the beginning of February.
This is a major impediment to global economic growth as Russia is one of the world’s largest exporters of crude oil. Indian trade, however, includes only 1% of imported oil from Russia, but it could have a spillover effect in the form of high inflation and slower growth.
On March 13, Morgan Stanley lowered India’s forecast for GDP for the 2023 financial year by 50 points to 7.9%, citing the risk of massive volatility due to high crude oil prices.
“While we expect the recovery cycle to continue, we expect it to be softer than we originally intended,” the report said. “We believe that ongoing global tensions increase external risk and create significant economic dynamics.”
It was noted that many risks could be raised if global economic conditions continue to deteriorate further, which could disrupt India’s export cycle and high costs.
2.Inflation concerns
India relies on imports to meet its 85% crude oil demand. Rising global oil prices to 14 years now will lead to widespread inflation.
Analysts conclude that the impact on India’s economy will be felt even more by the rise in high prices that put pressure on all economic workers — homes, businesses, and governments.
A 10% increase in crude oil prices is leading to a 0.4 percent increase in consumer spending, Nomura said.
Morgan Stanley puts inflation at 6% for the 2023 financial year, which is much higher than the RBI’s 4.5%.
This has increased the risk of high import bills and, similarly, an increase in India Accountability (CAD) shortages. CAD is expected to expand to 2.6% of GDP for the 2023 financial year, up from 1.7% last year, according to a report by Nomura Research. This is likely to lower the rupee, which recently dropped its low record of 76.98 dollars.
3.Indian protective clothing
It is believed that the numerous withdrawal from the United Nations vote in India since the invasion of Ukraine was due to the country’s need to protect the provision of defense equipment, most of them from Russia.
A report on the conference’s research service from October 2021 said that Indian troops could not function properly without the equipment provided by Russia. The Indian Army’s largest military base is made up mainly of the Russian T-72M1 and T-90S, accounting for 66% and 30% of all units respectively, it said.
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