Impact of Russia-Ukraine war on Indian Economy

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Impact of Russia-Ukraine war on Indian Economy

  • India is not party to this external event and is not impacted directly
  • Its medium- to long-term economic prospects are not altered due to it
  • The markets will likely remain volatile in the near term in line with geopolitical developments
  • But there are also concerns in place for India regarding this aggression between two countries

Inflation risks

  • Oil prices: Brent crude shot past the $100 per barrel mark for the first time in eight years on concerns over supply.
  • As Russia is the world’s second largest oil producer.
  • Rising oil prices could speed up already rising inflation.
  • India imports more than 80% of its oil requirement, but the share of oil imports in its total imports is around 25%.
  • Current Account Deficit: it will also impact the current account deficit, which is the difference between the values of goods and services imported and exported.
  • Commodities price: sanctions on Russia by the West could impact its trade with the world
  • It will result in a rise in the prices of other commodities and products, including wheat, edible oil, and metals.
  • India imports most of its requirement of sunflower oil from Ukraine

Impact of war on India’s Economic recovery

  • India’s economic fundamentals remain strong and the war will not have a significant impact on the economy.
  • There is a view that with the third wave of Covid close to its end and most restrictions having been withdrawn
  • There will be an uptick in consumption and domestic growth which will quicken the pace of recovery.

FPI sentiment, rupee

  • Geopolitical concerns have intensified the outflow of funds over the last two months.
  • FPIs pulled out a net of Rs 6,448 crore from Indian equities
  • It led to the fall in the markets.
  • This outflow is likely to continue over the coming days.

DII behaviour

  • Domestic institutions emerged as net investors as FPIs pulled out from the market
  • According to provisional data released by the stock exchanges, DIIs invested a net of Rs 7,667 crore which is more than what the FPIs pulled out.
  • The current geopolitical concerns will not impact long-term fundamentals and prospects of businesses

Gold outlook

  • When equities have been falling, gold has risen sharply.
  • The price of gold jumped 3.3 per cent recently
  • A report by Motilal Oswal Financial Services said gold prices are likely to rise further from current levels, as investors will move towards the safe haven following inflation-related concerns on higher crude prices and geopolitical tensions.