Russian invasion of Ukraine fuels fears of inflationary pressure on Indian economy

Lakshmana Venkat Kuchi *

As Russia rained down on Ukrainian cities, triggering a full-scale war in the region shocking the world, one thing is becoming crystal clear – a new international world order is being forcefully written.

Now for us in India, it is the Russia-China axis that should worry us, and especially given the fact that the Pakistani premier has been hosted in the Kremlin even as Russia was invading Ukraine. For us in India, the first and immediate impact of the Russian invasion of Ukraine is that the 18000 strong Indian student community is stuck in that country, and is sending out cries for help and pleading for evacuation to safety.

After a series of videos from affected students in Ukraine populated twitter and other social media platforms, the Government swung into action and is sending Government teams from neighbouring countries to Ukraine borders to help bring them out from the strife-torn country. Indian officials have been already sent to Ukraine’s land borders with Hungary, Poland, Slovakia and Romania to help any fleeing Indians.

Russian speaking officers have also been sent to Ukraine and the Government is doing all it can. For sure, this action could have come a tad earlier given indications of imminent action, especially after several other countries had advised their citizens to move out. Russian invaders were engaged in battle with Ukrainian forces all around its perimeter in what is seen as the biggest attack on its capital city of Kyiv since the second world war.

India has also begun using its good offices with Russia when Prime Minister Narendra Modi spoke with Russian President Vladimir Putin and urged him to put an end to violence and instead resolve the issue through negotiations. Peace in the region is in the interests of India and the stunned world, as the Russian action has already put pressure on the international oil market with a rise in global oil prices.

Now this will add that much more pressure on Indian oil import bill and is expected to fuel further inflation in the domestic Indian market as prices of oil escalate. Post elections in five States, it is being widely estimated and guessed that the domestic retail sale price of petroleum products, held steady for a few weeks, could increase steeply, and that will have a cascading effect on the prices of other commodities due to a rise in transportation costs.

Now the extent of the oil price rise, if at all it happens, is still being debated. But the Russian invasion of Ukraine has its own impact on global oil prices that have touched the US $ 100 per barrel for the first time in several years. Now, if the situation continues, there are apprehensions that the global crude oil prices could rise steeply adding additional pressure on countries like India that depend on imports for a major portion of its petroleum needs.

Any rise in the price of petroleum products, for sure, would lead in addition to inflationary pressures, something that the Government could ill afford. As the world’s third-largest importer of oil, India depends on imports for 80 percent of its requirements. The global price benchmark for crude oil, Brent, hit $105 a barrel the invasion. Indian Rupee too weakened 1.5 percent to 75.65 against the dollar.

Economists in India estimate that a 10 percent rise in oil prices could lead to an increase of 90 basis points in wholesale inflation. Higher oil prices are expected to have an overall impact on several industries that use crude oil and its derivatives, like manufacture of detergents, soaps, cosmetics, cement, paints, airline and tyre companies.

Even though Russia and Ukraine are not major trading partners of India, few sectors could see greater impact. According to reports, the two-way trade between India and Ukraine was $3.1 billion in 2021. India’s exports to Ukraine stood at $510 million, with pharma products making up 32% of it. Other exports include telecom instruments, iron and steel, agro chemicals, coffee etc.

India imported goods worth $ 2.6 billion from Ukraine last year, $1.85 billion of which is vegetable oils, mainly sunflower oil. Ukraine alone accounts for 70% of India’s sunflower oil imports. Now, if the situation continues, there could be supply disruptions that will increase the prices of sunflower oil in the country. Sunflower oil accounts for 14 percent of India’s edible oil imports.

When it comes to bilateral trade with Russia, India exported $3.3 billion worth of goods in 2021 and once again pharmaceutical products were the largest export commodity at $542 million. Other exports include electronics, iron and steel, tea and auto components. India’s imports from Russia, worth $8.6 billion, were crude oil, petroleum products, coal, fertilisers, gold, precious stones and precious metals.

Most importantly, Russia is our biggest arms supplier, and we have to wait and watch to see how the threatened sanctions against Russia from the United States and Europe work. The immediate “Made in Russia’ crisis challenges the unipolar world order dominated by the United States and places Russia, now seen in axis with China, as the aggressor scripting a new world order in which it will have a dominant place in the sun.

Ever since the disintegration of the once mighty USSR, steadily the US became the global superpower and policeman, which is now under challenge from Russia. Now this coming together of Russia and China is something that will have a tremendous impact on the possible future new world order. Russia continues to be a dominant military force, and China an economic powerhouse capable of challenging any and every economy.

This combination is what makes the situation tense as many Nations have condemned Russian action. The American attempt to have its base in Ukraine through NATO forces is what may have annoyed and angered Russia which has its eyes on oil and other natural resources as well. The situation on day two of the Russian invasion was that missiles pounded the capital city even as Russian forces pressed their advance.

Ukrainian President Volodymyr Zelenskiy was urging the international community to act as sanctions against Russia were not enough. So far, 137 people, including 10 military officers, have been killed and 316 injured.

Meanwhile, US President Joe Biden said Washington will intervene if Putin moves into NATO countries. Already, countries on NATO’s eastern flank, especially the Baltic States of Lithuania, Latvia and Estonia, have received the first batches of US military troops.

As the world waits with bated breath, a televised war being seen on social media platforms has the global citizenry worried. If it was Corona the world is still battling with, they have a new worry if the Russian action would spark off further reaction and draw the world into an extended spell of turmoil–something that clearly, we cannot afford, given the potential damage such action could cause to mankind.