Russia-Ukraine War: Russia President Vladimir Putin has announced a military operation in Ukraine during wee hours of Thursday. Russian troops landed in the Ukraine Black Sea port of Odessa and in Mariupol in the eastern Ukrainian region of Donetsk, Russian news agencies reported, quoted Reuters. Soon after Putin’s announcement on a state television, several explosion were heard in Kyiv, capital of Ukraine. Then, foreign minister Dmytro Kuleba said Russia has launched a full-scale invasion of Ukraine and is targeting cities with weapons strikes.
Stock market across the world crashed after Putin’s blistering warning of invading Ukraine’s border. Sensex shed around 2,000 points during the early trade on Thursday. Nifty dropped over 570 points to drop below 16,500-mark on February 24. Brent crude oil pricrs hit $100-per-barrel-mark for the first time since 2004. Gold prices in the domestic market crossed Rs 51,400, highest in the last few months. The rising conflict between Russia and Ukraine has a huge impact on the global economy.
Crores of Indians will also have to bear the burnt of escalating Russia-Ukraine crisis. Tension in the region will drive commodity and food prices higher.
Petrol Price to Increase Soon
Petrol and diesel prices in India remained stagnant since November 4, 2021. To bring some relief to Indian middle class, the central government cut the excise duty on petrol and diesel by Rs 5 and Rs 10, respectively in November last year. Following Centre’s move, several states also announced to reduce the value added tax (VAT) on fuel prices. With Brent crude oil price climbing to record high, oil marketing companies is likely to revise the fuel prices soon. Experts believed that petrol and diesel prices will witness a sharp jump in early March, once the state assembly elections end.
“Russia accounts for one in every 10 barrels of oil consumed globally, so it is a major player when it comes to the price of oil and it’s really going to hurt consumers at the petrol pumps,” said Navneet Damani, Sr. vice president, commodity and currency Research.
You have to Shell More for Food
The biggest casualty of Russia-Ukraine war could be the higher food prices. A sharp jump in crude oil prices will pose inflationary, fiscal, and external sector risks, experts opined. Crude oil-related products have a direct share of over 9 per cent in the Wholesale Price Index (WPI) basket. The rise in crude oil prices is also expected to increase the subsidy on LPG and kerosene, pushing up the subsidy bill, Damani mentioned. Moreover, higher crude oil prices will increase transportation costs and it will subsequently rise costs of your food bill.
Ukraine and Russia together are the heavyweights in global wheat, corn and sunflower oil. The crisis over the region will impact the crop production and movement across the world. The palm oil and soy oil price could hit the record level in the short term. So, India’s import bill is set to rise.
Major Macro Headwind for the Indian economy
The Economic Survey 2021-22 has projected that India’s real gross domestic product (GDP) is expected to grow by 8-8.5 per cent in financial year 2022-23 (FY23). The growth projection is based on certain assumptions — there will be no further debilitating pandemic-related economic disruption, a normal monsoon, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the $70-75 a barrel range, and global supply chain disruptions will steadily ease.
“If the high crude prices remain at high levels it can be a major macro headwind for the Indian economy. Our trade deficit will widen, rupee will depreciate and inflation will rise. Even if the government absorbs part of the crude spike through excise cuts, part of the hike will have to be passed on to consumers resulting in cost- push inflation. The RBI will be forced to withdraw from the accommodative monetary stance that they have been following since the outbreak of the pandemic. But if the crisis blows over soon, crude will come down the situation will stabilise,” said VK Vijayakumar, cheif investment Strategist at geojit financial services.
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