India Braces For Economic Impact From Russia Ukraine Standoff

Last updated on October 26th, 2022 at 10:15 am

^Russia -With the Russian inevitability of the Ukraine invasion, the supply chains across the world are going to be severely disrupted. Indian economy might have to deal with rising oil prices for starters, economists are predicting.

This could escalate India’s already increasing inflation rates and further mount pressure on its current account deficit. The oil issue is more significant because India imports literally 80percent of its oil from Middle Eastern nations. Mr. Narendra Modi’s friendship with Putin has not been able to have an effect that could have influenced Kremlin’s decision to back off from war. The surge in world prices will affect the state-owned oil companies and force them to increase prices.

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Crude oil-related products have a direct share of over 9 per cent in the WPI basket and, according to a report by Bank of Baroda chief economist Madan Sabnavis, a 10 per cent increase in crude would lead to an increase of around 0.9 per cent in WPI inflation.

“Our baseline forecast for WPI is 11.5-12 per cent for FY22 and 6 per cent in FY23, which might increase by around ~0.9-1 per cent because of increase in crude prices,” says the report.

Speaking to the media over recent developments, ICICI Securities have predicted, “If sanctions take about 60 per cent of this off global markets (with China, Belarus, and a few other customers possibly defying the sanctions), world crude-oil supply would decline by 3mmbd, and the Brent crude price would likely shoot above $110/bbl. However, even with the possible restoration of Iran as a major crude oil exporter, Brent would likely remain above $100/bbl for much of 2022.”

Further, the starting war could also mean that vital supplies of fertilizer from Russia could be disrupted as sanctions intensify, threatening India’s vast farm sector.