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

1. The Impact of Ukraine- Russia conflict on Indian economy
   • 1. Inflation
   • 2. Exchange Rate
   • 3. Crude 
2. Impact on Imports
• 1. Thermal coal and gas imports 
• 2. Critical Defence Equipment

1. Inflation

As there is an increase in oil prices, this will also affect 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 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.

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.