Russia-Ukraine conflict; How will it affect the Indian economy, Explained

Russia on February 24 invaded its border country Ukraine, in a full-scale escalation of conflict between the two countries as the relationship of both deteriorated. Russia declared a military operation in Ukraine around Ukraine time 5.00 am, where massive and big explosions were heard from the city of Kyiv, Kharkiv, and some other parts of eastern Ukraine. Russia’s invasion came even as the UN Security Council was at the time discussing efforts to defuse tensions.

After the commencement of the war, a lot more distractions were happened not only for Ukraine but for the rest of the world. Ukraine residents flee from war zones, Ukraine’s President Zelenskyy announced martial law, oil jumped $100 a barrel for the first time since 2014, Sensex crashes over 2000, Nifty below 16450.

After Ukraine saw the invasion killing 10 people of Ukrainians at that time, and decided to retaliate at that moment. Ukraine’s military claimed it had shot down five Russian planes. Foreign Minister Dmytro Kuleba said in a tweet that Russian President Vladimir Putin has “launched a full-scale invasion of Ukraine” and vowed the country “will defend itself and will win”.

This news had an impact on the Indian economy and stock market as Sensex fell over 2000 points as soon as the market opened. Nifty also fell down. Soon after the move, India’s concerns have also increased amid the scare of a third World War.

Russia Ukraine war effect on India

When Russia-Ukraine relations deteriorated and Russia deployed troops on the Ukrainian border, no one expected Russia to enter into an open war, except the United States. The United States was the first country to warn of war at the border area of Ukraine. Even when Russia announced its military withdrawal from the border, the United States did not trust the Russian move. Finally, after analyzing the Intelligence report, war was declared. Here are the areas where the war affected the most:

  1. The Indian economy and Indian market has suffered a setback amid fears of war. Within minutes of opening the market today, investors lost about Rs 6 lakh crore. 2413 shares were down. Only 355 stocks were gained. This is the fourth day in a row that the market has continued to fall sharply.
  2. Moscow’s stock market index fell about 10 percent on the day of war. Now with a further decline of 4%, the market’s total loss for this year has crossed 20%. It is almost certain that this will increase further in the coming days.
  3. As the war paved the way for a surge in crude oil price, it is anticipated that there would be a price increase for some of the items in India. The first item that gets affected is the fuel. Oil accounts for about 25 percent of India’s imports. The current fiscal deficit will be affected by rising oil prices. As a result, India will witness an increase in fuel prices in cities across the country.
  4. Around 90 percent of sunflower oil import is from Russia and Ukraine. The price surge of the item in will be another crisis that the country would be going to witness. In 2021 itself, India has received 1.89 trillion tons of sunflower oil from Ukraine and Russia. The major percentage was from Ukraine- 70 where the small portion of 20 percent was from Russia. However, at this time of conflict between the two European countries, the import of sunflower oil has become a matter of concern, as India hasn’t received at least a shipment of sunflower oil.
  5. Russia and Ukraine are the countries top the list of countries in the export of wheat. Amidst the conflicts between the two countries, Indian economy will get a setback from this side also because of the halt of wheat export.
  6. It is reported that the price of palladium will go up. Palladium is a metal used in mobile phones and automotive exhaust systems. Russia is the largest exporter of palladium in the world.
  7. The Indian pharmaceutical industry may experience a ripple effect of the ongoing Russia-Ukraine crisis as the majority of domestic players have a strong presence in both countries. Ranbaxy, Sun Group, and Dr. Reddy’s Laboratories have offices in Ukraine. The war will affect these exports as well.

India currently has a neutral stand on the Russia-Ukraine dispute and has appealed to both countries to exercise restraint. However, it is clear this will negatively impact India and its economy. This is because India also has trade relations with the two countries.

Read Also: Russia attacks Ukraine; Oil jumps $100 a barrel for the first time since 2014

If the geopolitical situation deteriorates further, the Indian economy is expected to get another blow after the Covid-19 pandemic.

Energy crisis in Europe

Russia supplied gas to Europe during the Cold War, following the 2014 occupation of Crimea. According to Uniper SE, one of the largest buyers of Russian gas in Europe, Moscow does not want to damage its reputation as a reliable supplier.

China on the other hand has chosen Russia as their trade partner in the supply of energy. In early January, China’s Xi Jinping met with Russia’s Vladimir Putin and China supported the security arrangements requested by Russia from the US and NATO.