Economic Watch: Russia-Ukraine conflict heightens worries over Indian economy

NEW DELHI, March 20 (Xinhua) — The ongoing conflict between Russia and Ukraine is casting a heavy cloud over the Indian economy.

The surge in international costs of commodities driven by the conflict is creating a drag on India, which is pursuing an economic recovery following two deadly waves of the COVID-19 pandemic.

The strict lockdown imposed by the South Asian country during the pandemic has sent its growth in a downward spiral.

According to official data, India’s gross domestic product growth during the financial year 2021-22 is estimated at 8.9 percent after a 6.6 percent contraction last fiscal year.

While that recovery will be one of the quickest among major economies, it is still slower than the 9.2 percent expansion projected by the government last month.

RISING FOOD PRICES, FARMING COSTS

As Ukraine and Russia, two major suppliers of agri-products, are caught up in the conflict, the cost of edible oils may well skyrocket in India in the days to come.

Agri-commodity pundits and future traders are putting a big bet on mustard. Insiders said that hoarding has also begun in parts of the country.

Russia and Ukraine together supply 90 percent of India’s sunflower oil.

India’s imports from Ukraine stood at 2.6 billion U.S. dollars in 2021, of which 1.85 billion dollars were spent on vegetable oils, mainly sunflower oil.

With tensions escalating, traders and experts are expecting a hike in prices.

“Indian frying pans may miss this precious oil, and with no healthier alternatives, prices are already up and shipping companies are charging higher insurance premiums for freight consignments from the Black Sea,” said Indra Shekhar Singh, an independent agri-policy analyst.

“This will have a direct impact on edible oil prices,” said the analyst, noting that “adding to our troubles is India’s growing demand for cooking oils, and the fact that rapeseed (a variety of mustard) exports are blocked doesn’t help.”

Another major threat to food prices and security comes from chemical fertilizer shortages.

Russia is the second-largest producer of potash, which is used in the production of Di-ammonium phosphate (DAP). Since DAP is critical for chemical/industrial agriculture, without it farmers may experience poor yields and no germination of their crops.

Reports said that DAP prices have already started increasing and the cost of nitrogen fertilizers has also soared.

In the wake of sanctions by the West against Russia, the price hike would intensify further, which in turn would increase input costs of farming.

DRAG ON ECONOMIC RECOVERY

Amid the conflict, oil prices have breached 100 dollars a barrel. The price rise is the highest since June 2014.

India is the world’s third-largest consumer of oil with a consumption of up to 5.5 million barrels a day.

India’s tax revenues are also heavily dependent on oil, which accounts for more than 50 percent of federal excise duties — tax collected on goods produced within the country.

Experts noted that no other country among large emerging economies is more vulnerable to high oil prices than India, and a hike in fuel means an increase in prices of all day-to-day commodities.

“Sanctions on oil and gas are a bad idea. It will smother global economic recovery,” said Narendra Taneja, an energy expert. “Emerging and poor economies will be the worst hit. Energy poverty will grow. Inflation will rise. Millions and millions will suffer.”

An increase in fuel prices will hurt India’s growth and slow down the economic recovery.

Jimeet Modi, CEO of Samco Ventures, recently said that though India is well equipped, the South Asian country is certainly not immune to the repercussions.

“As a huge portion of our population is battling with stagnating or decreasing incomes and rising living costs, the present visible private demand is emanating from the top of the pyramid. This, coupled with sustained high inflation, may indicate the evolution of a stagflationary situation where the economic growth momentum slows,” he said.

“If the un-abating rise in commodity prices were to go on, it would force the companies across sectors to pass on some hikes to the end consumer in order to protect their margins,” Modi said.

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