The crisis in Eastern Europe creates volatility across various sectors, including equities, currencies, oil, and aviation. The year 2022 seemed to herald a new era for India, and the damage of the pandemic was mitigated. The death toll, in particular, has decreased. Flight schedules were becoming more regular. Public events resumed, and employees returned to work. There was the prospect of a new beginning.
On February 24, just as usual social and economic activities began, the Russia-Ukraine war began. The battle between Russia and Ukraine is still raging, even though evacuation operations are ongoing. India, located approximately 5,300 kilometres away, is bearing the brunt of the conflict. Only two weeks after Russia invaded Ukraine, and the Indian rupee has breached the critical 77-to-the-dollar level. While oil prices continue to rise, equity indices continue to fall. Travellers are also feeling the pinch due to the crude oil price increase due to the increase in jet fuel prices due to geopolitical concerns.
The worst is yet to come, as analysts expect the war to affect India’s growth rate. A worsening current account deficit, which stood at 1.3 per cent of GDP in the third quarter, is forecast, fueled by higher oil costs.
Numerous commodities, including oil, precious metals, chemicals, and electrical machinery, are imported into India. The Russia-Ukraine conflict has resulted in a global price increase for similar commodities. This means that all imports will be more expensive.
Ukraine and Russia are also critical to India’s export-import bill. We import sunflower oil from Ukraine and fertiliser from Russia (aside from defence equipment), while tea is sent to Russia. Due to the war and the sanctions imposed on Russia, these routine commercial activities have been halted.
When trade is halted, economic growth is harmed. The National Statistical Office (NSO) anticipates economic growth of 8.9 per cent in 2021-22, down from the January estimate of 9.2 per cent. In the third quarter of the current fiscal year, GDP growth was 5.4 per cent.
When the conflict was declared, crude oil prices increased immediately. Brent crude oil reached $129 (Rs 9,912.04) a barrel for the first time since 2008 in the opening few minutes of trading on March 7.
In recent months, aviation turbine fuel, generated from crude oil, has experienced rapid price growth. The jet fuel price increased to Rs 96,478 per kilolitre on March 1. Airfares have increased by about 20% as a result of the fact that fuel contributes to 35–40% of an airline’s operating costs. This is a setback ahead of the extended Holi weekend, during which flight travel will be much more expensive.
Those Indians who are travelling worldwide face significantly more severe dangers. The Indian rupee has depreciated versus the US dollar. On March 7, the rupee fell nearly 1% to a record low of 76.93, its fourth consecutive session of decline. Due to the market’s reduced risk appetite, it breached a lifetime low of 77.
As a result, Indians must spend more money on international trips and imported goods. Yes, purchasing an iPhone or AirPods has become more expensive. As the conflict continues, the Indian equities markets exhibit unstable slopes. The BSE Sensex plunged roughly 1,500 points on March 7, while the Nifty lost 383. Negative emotions impacted the indices among institutional investors and record-high crude prices due to the war. Pressures to sell continued to mount.
Additionally, the Indian rupee is expected to cross the 80-per-dollar mark as tensions between Russia and Ukraine increase.
Meanwhile, Life Insurance Corporation’s initial public offering, dubbed the country’s largest-ever, may be delayed if the finance ministry takes a wait-and-see attitude toward the war.
As the crisis unfolds, India is looking for a possible discussion between Russian President Vladimir Putin and his Ukrainian counterpart, Volodymyr Zelenskyy. Hopes are pinned on a peaceful resolution between the two countries. The United States and the European Union have slapped sanctions against Russia. Because this crisis is still developing, the world is in a wait-and-see mindset.
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