Economic Impact on India – due to a European Conflict

India has taken a neutral stance in the Ukraine Russia war. This is
because of its historic strategic partnership with Russia. This alliance
goes back to Cold War times and the cooperation extends in many areas
including diplomacy, defence, nuclear energy, and technology. Russia has
been a pivotal part of India’s nation-building process.
The economic sanctions on Russia will have an impact on the global supply chain. Disruptions
in many sectors would be inevitable. India needs to prepare its strategy to counter the impact
even though its policies do not directly embroil it in the conflict.
As Russia’s crude exports have been banned, global crude prices have crossed 100$ a barrel
up from 70$ and if the conflict extends or escalates the prices could go even higher.
India depends on imports to meet up to 85% of its crude oil needs. The surge in international
oil prices to a 14-year high will now result in broader price pressures. This will have a direct
impact on transportation costs of all items fuelling inflation. International freight costs have also
sky rocketed increasing costs of both imports and exports.
The increased cost of import of crude oil will increase India’s current account deficit reducing the value
of the rupee against the USD. This in turn will make imports even more expensive.
India depends on Russia for majority supplies of its defence equipment including the latest S400 missile
systems. Hence keeping a neural position ensures India access to the needs of its defence forces.
However India can take advantage in the agricultural sector. Russia and Ukraine used to export
30% of the global wheat. Due to the war this supply is unavailable to the International market.
Indian exporters will benefit both from increase in price and demand of grains and commodities.
Due to global supply disruption, international steel prices have risen by about 7% and if the
war extends this is likely to increase further to cater for shortages due to no steel exports
from Russia and a greater demand by the defence sector world wide. It is an opportunity for
India to expand its capacity of steel production and supply to the domestic market.
While all the disruptions continue, seems that the relations ship between the two large
manufacturing economies of the world India and China are coming closer. It is to be seen if these
two economies will displace Europe in the new economic order

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