Professor and Head of the Department, JIMS KALKAJI
Prof Navneet Gera discussed about an interesting topic with PGDM students of JIMS, KALKAJI in class. Global economies have not yet fully recovered with ongoing COVID-19 and yet another unprecedented situation has created devastating effects due to Ukraine and Russia war. Indian economy is heavily dependent on Ukraine for Sunflower Oil (HS-Code 1512) which forms 1.5 Billion Dollars of imports. Moreover, Ukraine is the world’s largest exporter for Sunflower oil (HS -Code 1512) with a value close to 5 Billion Dollars.
Dr. Gera addressed how, in addition to the pain and humanitarian disaster caused by Russia’s invasion of Ukraine, the whole global economy is suffering from slower growth and higher prices. Countries in the European Union (EU) are projected to be severely impacted. Despite having maintained a neutral posture, India would not be immune to the impacts of the conflict. This event has the potential to have two effects on India Inc. One, the resulting increase in commodity prices may raise input costs and pressure downstream sector profits. Second, trade and financial restrictions may reduce India’s export-import activities in the targeted region unless workarounds are discovered.
Negative Impact on Indian Economy: Even though India does not have a major merchandise trade with Russia, it stands to lose economically because of supply interruptions created by Western sanctions. However, India is most reliant on Ukraine for sunflower oil, with Russia being the second largest exporter of sunflower oil to India. As a result, India’s trade will suffer, mainly from edible oil, specifically sunflower oil.
Ban on Russia’s crude exports: However, India’s trade only accounts for 1% of Russian oil imports, but there may be a spillover effect in the shape of high prices and slow growth. Morgan Stanley cut India’s GDP prediction for fiscal year 2023 by 50 basis points to 7.9 percent on March 13, citing concerns to macro stability caused by rising crude oil prices.
Inflationary concerns: Up to 85 percent of India’s crude oil demands are met by imports. The 14-year peak in world oil prices will now result in broader pricing pressures. According to analysts, the impact on India’s economy would be seen mostly through increasing cost-push inflation, which will affect all economic agents that is business and government.
Effect of war on fertilisers: Moreover, India is also dependent on Ukraine for fertilizers particularly the nitrogenous one. India will have to explore other options to meet the growing demand of fertilisers in India which will be little challenging.
Positive Impact on Indian Economy: Because India is a surplus producer of grain, agricultural exports will gain from the current high prices in the short run. India has been one of the key producers of wheat as well as Rice. Rising worldwide prices have made Indian wheat exports more viable, allowing them to replace at least a portion of the gap left by Russia and Ukraine. Wheat from Gujarat, Rajasthan, and Uttar Pradesh is currently provided at a price higher than the government’s minimum support price (MSP). A portion of wheat from western and central India may be exported instead of being stored in the Food Corporation’s godowns, putting pressure on public reserves. In such a case, the government must carefully manage both its own inventories and the general domestic wheat availability position.
Edible Oil Prices: Prices for vegetable oils and oilseeds are soaring. Sunflower and soyabean oil are examples of this. The circumstance would most likely assist mustard farmers in Rajasthan and Uttar Pradesh, who are preparing to market their harvest in the coming weeks.
If Russia and Ukraine do not reach an agreement quickly, the crisis has the potential to spread beyond the area. And that would be awful for business. Consumers will also have to brace themselves for significant increases in the pricing of animal protein, such as chicken, dairy products, edible oil and seafood. The Russia-Ukraine conflict may have some harmful consequences. However, the impact on the current account might be largely mitigated by favourable shifts in the prices of commodities that India exports, such as wheat, which is being discussed. Similarly, many experts are concerned that the impact on India’s economy would be severe; others are optimistic that India’s economy will be immune to the impacts of a distant conflict. So, while the Indian economy will confront and has already begun to face certain challenges, there will be some industries that will profit.
Professor and Head of the Department, JIMS KALKAJI
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