Russian invasion of Ukraine has impacted the global economy adversely , India has also felt the ripple effects. We can see that the growing commodity prices are contributing to the rising inflation rate in the country. As Russia announced war on Ukraine India’s stock benchmarks logged their second worst day since March 2020, the month when Country imposed covid restrictions, due to escalation of geopolitical crisis in Ukraine. Now Russia is India’s 25th largest trading partner with exports of $2.5 billion and imports of $6.9 billion in first nine months of the financial year 2021-22. India’s key exports to Russia include mobile phones and pharmaceuticals while India’s key imports from Russia are crude oil, coal and diamonds. Here Crude oil and coal controls India’s most important sector. Now as Russia is on war ultimately the prices of crude oil and coal are high means India’s import bill has increased undoubtedly.
Crude oil related products have a direct share of over 9% in the wholesale price Index basket .Hence rise in crude oil basket will likely result in increase of the budget for the Indian household. Aslo brent crude oil prices hit $100-per-barrel-mark for the first time since 2014. Gold prices in domestic market crossed Rs 51,400 highest in last few months. Following the rise in crude oil prices, the cost of aviation turbine fuel (ATF) has advanced 19% to Rs 90,519 per Kl from Rs 76,062 per Kl on Jan 1. Now the cost of ATF is more means prices of flight have increased.
Paint companies uses the crude oil derivatives such as monomers and titanium dioxide as raw materials which account for more than 50% of a company’s total expense. Likewise crude derivatives are also used in the manufacturing of tyres which contributes around 30% of the total raw material cost. Higher oil prices will put pressure on the currency as a result the rupee will depreciate and inflation will rise . Even if government absorbs part of 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.
The war is still going on and it’s more laying further for all the countries globally to face the impacts of war.