As we all know Ukraine-Russia Conflict is going on, and our Indian economy will get hit because of it! Yes!
We are already witnessing its effect in Indian stock market benchmarks, i.e. Nifty 50 and Sensex, which have fallen to 2.4% and 2.4%, respectively, since Russia started invading Ukraine.
Also, oil surged over 40 per cent to $101.2, and the rupee also fell 40 paise or 0.5 per cent to hit 75.1 to USD.
Different countries of the world impose many sanctions on Russia, due to which the currency and global trade can be affected.
Also, The United States and its allies on Saturday moved to block certain Russian banks’ access to the SWIFT international payment system.
The Russian economy mainly depends on the export of oil and gas. And their financial institutions rely on SWIFT for executing these transactions. So if Russia is entirely cut off from then, it would disrupt the trade in a significant way.
The Ukraine-Russia conflict will have a significant impact on the Indian economy as well! Yes! You have heard it right.
So, in today’s blog, we will discuss the impact of the Ukraine- Russia conflict on the Indian economy:
The Impact of Ukraine- Russia conflict on Indian economy
Now let us discuss what will be the impact the impact of Ukraine- Russia conflict on Indian economy-
1. Inflation
As there is an increase in oil prices, this will also affect the freight movement. In addition, this will cause an increase in the cost of food items like vegetables, fruits, pulses, oil, etc.
The Ukraine-Russia conflict will also increase inflation in India. So, if there is a rise in inflation, it may rise beyond the projected figures of RBI, and they will be forced to increase the rates.
2. Exchange Rate
If the Ukraine-Russia conflict continues, the exchange rate will be affected, and the rupee may depreciate further.
This can cause a rise in the country’s total trade spending.
3. Crude
Brent crude oil prices are expected to rise to $105 per barrel, according to commodity experts. As a result, crude oil imported into the country will be more expensive, resulting in a price increase.
India imports more than 80% of its oil requirement, but the share of oil imports in its total imports is around 25%.
An increase in the oil prices will impact the current account deficit, i.e. the difference between the values of goods and services that are imported and exported.
The auto industry in the country will also be impacted.
The war’s impact would be felt in the metal sector, as India imports a significant amount of metal from Russia. Therefore, more sanctions on Russia and a ban on metal imports might pose a serious challenge for India.
Read more about Commodity Markets from ELM School
Impact on Imports
India’s trade with Russia has been unaffected by the escalating tensions in the Russian-Ukraine border region. Still, there is a risk that it will be if more sanctions against Russia are imposed.
1. Thermal coal and gas imports
India’s thermal coal imports to Russia dropped from 1.6 per cent in 2016 to 1.3 per cent in 2021. It currently appears that it will continue to fall.
Apart from that, India also buys Russian crude oil. India imported 43,000 BPD of oil from Russia in 2021. However, Russia’s crude imports represent less than 1% of India’s overall imports.
Russia supplies 0.20 percent of India’s gas imports. GAIL (Gas Authority of India Limited) has secured an LNG contract with Gazprom.
Also, most foreign oil units like India’s ONGC’s are in Russia.
2. Critical Defence Equipment
India relies on imports for critical defence equipment. However, it will face difficulty in importing defence equipment as the Russians will delay deliveries, given their requirements.
As a result, India’s preparation for facing China and Pakistan will weaken. China might take advantage of this development and push India harder.
As many sanctions are being imposed by the US, both the US and Russia are likely to become tricky as we are forced to stay neutral between them while both expect support.
You can also watch our video on – Crisis is here ! What am I doing in markets now?
Bottomline
As discussed above, there will be a significant impact on India’s economy as the Ukraine-Russia conflict rises. You should also update and learn macroeconomics to understand these case studies even better.
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