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Pradeep Multani, President, PHD Chamber of Commerce and Industry says the Russia-Ukraine war has short-term and long-term implications for India’s economy
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The immediate impact of the Russia-Ukraine war on the Indian economy can be seen in the form of rise in crude oil prices, financial markets turbulence and the prospect of rising current account deficits, which will weaken the rupee even more against the dollar.
Russia is the world’s secondlargest crude oil exporter; the ongoing sanctions will inevitably raise oil prices, which are now hovering around $110. If fuel costs remain high for an extended period of time, prices of other goods that India imports will climb in the international market as well.
On the bilateral trade front, trade between India and Russia stood at $8.1 billion in FY21, with India exporting roughly $2.6 billion and importing $5.5 billion. The resultant trade deficit stood at $2.8 billion. At the same time, India is Ukraine’s largest export destination in Asia-Pacific with bilateral trade in FY21 amounting to $2.5 billion. India imports $2.1 billion from Ukraine and had a trade deficit of $1.69 billion in FY21. Ongoing war will impact that number now.
Russia and Ukraine are the major global suppliers of wheat, corn and sunflower oil. Together, these two countries account for 90 per cent of India’s sunflower oil import. India imported around $1.89 billion worth of sunflower oil in 2021, 70 per cent of which came from Ukraine, which has not sent a single shipment in the ongoing month. Considering the demand for edible oil in India, the rise sunflower oil prices will drive up inflation in India.
Steel prices are likely to remain high in the short term due to the expected shortfall in international markets due to the ongoing war. India, one of the major exporters of pharmaceutical products to Ukraine, will also be impacted, and the automobile sector’s input cost is also expected to rise. The industries that depend on major inputs such as oil, chemicals, fertilisers, gas utilities, refining and marketing will have a negative impact.
Impact on MSME The Russia-Ukraine crisis has created uncertainty not only in prices of crude oil but also in most of international commodities. The ongoing tussle could add to the high cost of raw materials and may impact the price-cost margins of the producers. Though MSME sector is not directly connected with the Global Value Chains as compared to the large conglomerates, the Russia-Ukraine war will have some impact on exports vis-à-vis disrupted value chains. As MSMEs are contributing more than 40 percent in India’s exports, the disrupted exports will have an impact on working capital of MSMEs.
In a nutshell, India’s long-term fate amidst the ongoing situation in the international territories is fairly unpredictable since serious short-term consequences began to manifest just hours after Russian soldiers invaded Ukraine. India may face delays in consignments and the closure of potential future deals as a result of sanctions on Russia. It will also have an effect on India’s manufacturing competitiveness in the global market.
As told to Ashish Sinha