Surrounding the escalating tensions between Russia and Ukraine is a certain resultant ominous effect on economies, the fact that, rising oil prices, and export declines, has necessitated a downward revision of India’s economic growth forecast by 0.1 percentage point to 7.8 per cent in 2022, according to GlobalData.
The negative repercussions as highlighted will in turn cause ripple effects on input prices and consumer goods leading to inflationary pressures, the leading data and analytics company said.
Gargi Rao, Economic Research Analyst at GlobalData, commented:
“In the short-term, Indian traders may feel the pinch of higher oil and gas prices along with delays in shipment and movement of assignments across Black Sea. Inflation rate is already on the rise due to increase in prices of fuel and edible oils. GlobalData forecasts the ongoing geopolitical risks arising from the Russia-Ukraine war to further push the inflation rate to 5.5% in 2022 compared to 5.1% in 2021.
“Rise in commodity prices will add to the current account deficit, tighten financial conditions and lead to a possible depreciation of rupee against the US dollar. Investment climate might deteriorate. Shock to stock markets will further lead to decline in capital inflows.”Gargi Rao
India’s Import Bill Expected to Rise
Ukraine and Russia together accounted for 2.2 per cent share of total imports of India in 2020. India mainly imports mineral fuels (34% of the total imports), natural pearls & semi-precious stones (14%), fertilizers (10%), petroleum oils & crude (5.6%) from Russia.
Imports from Ukraine include animal or vegetable fat and oils (74.9% of the total imports), fertilizers (11%), and inorganic chemicals (3.5%). GlobalData forecasts prices of these items to shoot up in the short-term.
“Disruptions to supply cause prices of intermediary goods such as pig iron to shoot up. India being the largest importer of sunflower oil, shipments of tons of cooking oil to India are at risk as logistics and loadings remain stuck at various ports. As a result, the country may face the prospect of increased prices of edible oils. Moreover, due to rise in crude oil prices, Indian import bill is expected to inflate.”GlobalData
According to GlobalData, the country’s diamond business could number among sectors most affected by Indian bank’s decision to freeze fresh transactions with Russian institutions. Farm exporters might take a hit due to port congestion. Many defence projects are likely to get delayed in Russia thereby affecting the defence manufacturers in India.
However, it is not all gloomy, as the higher economic sanctions on Russia from the U.S. and EU, India can benefit from possible new export opportunities. Furthermore, steel and aluminium manufacturers could gain by tapping into the EU market.
Overall, Indian banking sector will likely remain resilient. However, there might be a possibility of monetary tightening amid the inflationary pressures, GlobalData said.
“There are upside risks to domestic inflation arising out of international commodity prices amid the ongoing conflict. Indian importers might feel the pinch of higher commodity prices and exporters may fail to reap benefits due to high logistics costs.”GlobalData