Impact of Russia-Ukraine Conflict on

Indian economy
Index
Intro.

How it effected economy or russiaand Ukraine

How it has effected economy glabally.

fIndias relationship with Russia

How it has effected india economy

Case study

summary

1.Introduction
On 24th February, 2022
Vladimir Putin unleashed the biggest war in Europe since World War Two with the
justification that modern, Western-leaning Ukraine was a constant threat and Russia
could not feel "safe, develop and exist".
Thousands of people have since died, towns and cities such as Mariupol lie in ruins
and 13 million people have been displaced

The Russian leader's initial aim

was to overrun Ukraine and depose its government, ending for good its desire to
join the Western defensive alliance Nato. After a month of failures, he abandoned his
bid to capture the capital Kyiv and turned his ambitions to Ukraine's east and south.

Nato The North Atlantic Treaty Organization also called the North Atlantic Alliance, is
an intergovernmental military alliance between 30 member states – 28 European
states, the United States, and Canada
NATO is a system of collective security: its independent member states agree to
defend each other against attacks by third parties. It was established during the Cold
War in response to the threat posed by the Soviet Union.

Launching the invasion on 24 February he told the Russian people his goal was to
"demilitarise and de-Nazify Ukraine". His declared aim was to protect people
subjected to what he called eight years of bullying and genocide by Ukraine's
government. Another objective was soon added: ensuring Ukraine's neutral status .
President Putin has spoken of Russia's invasion as a "noble" cause
Russia's leader refused to call it an invasion or a war. Moscow continues to coin
Europe's biggest war since 1945 a "special military operation".
The claims of Nazis and genocide in Ukraine are completely unfounded but part of a
narrative repeated by Russia for years.
Russia that is now accused by the international community of carrying out war
crimes. Several countries including the US and Canada go further and call it
genocide.
After so much destruction, the Russian leader's words ring very hollow now: "It is not
our plan to occupy the Ukrainian territory; we do not intend to impose anything on
anyone by force."

2.Economic impact of war

Putting aside the very real human cost, war has also serious economic costs – damage to
infrastructure, a decline in the working population, inflation, shortages, uncertainty, a rise in debt
and disruption to normal economic activity.

From some perspectives, war can appear to be beneficial in terms of creating demand,
employment, innovation and profits for business (especially when the war occurs in other
countries.) However, when we talk about the ‘economic benefits’ of war we must be aware of the
‘broken window fallacy‘ – when we spend money on war, this creates demand, but also it
represents a huge opportunity cost – rather than building bombs and rebuilding destroyed towns,
we could have used this money to improve education or health care.  For example, the
opportunity cost of the Iraq war was estimated at $860 billion by end of 2009 (source: NY Times)

The broken window fallacy states that if money is spent on repairing the damage, it is a mistake
to think this represents an increase in economic output and economic welfare. If money is spent
on repairing a broken window, the opportunity cost is that individuals cannot spend money on
more productive goods. The broken window doesn’t increase overall output – it merely shifts an
economy from productive output to maintaining the existing situation.

Economic costs of war in history

There was a time when war could be economically beneficial. In a mercantilist period before
substantial trade, a way to improve the economy was to plunder wealth and land from other
countries. So for example, the Viking invasions probably increased the wealth of the Viking
economy in Scandanavia. Some men were lost in the fighting, but they gained unimaginable
wealth, slaves and booty. The wars were quite cheap – there were no armament costs and the
army could be self-sufficient. Therefore, the economic benefits of raiding countries could be
greater than the economic costs.

However, modern war is very different. Firstly, with all the technology, it is very expensive to run.
Modern armies need fuel, munitions and food.

Secondly, the world is now much more interconnected with a nation’s wealth increasingly
dependent on trade. If a country acts in an illegal war (like Russia 2022) it can face very painful
economic sanctions.

A third point is that nationalism is a more potent force since the nineteenth century. Occupying
armies are likely to face resistance from locals who refuse to be ruled by a foreign power.

2.Indias response to war

Yet, this is unlikely to shield India from the ravages of a war of such scale. Especially since, in
the global geopolitical context, both India and Russia today find themselves ever more closely
linked to two others powers, China and the US.

On 24th February, 2022, Russia & Ukraine entered into a conflict, which has affected the Indian
Economy, resulting in consequences & impacts on different areas & aspects. In a United Nations
(UN) meeting, India abstained from voting. India has maintained a neutral stance in the UN
meeting. 40 days elapsed since the start of this conflict

when Russian forces crossed the Ukrainian border en masse, India has
steered what it portrays as a neutral course on the war. It has
abstained on UN votes condemning Russia’s invasion. New Delhi
refuses to publicly blame Moscow for the crisis, even while
emphasising India’s traditional respect for sovereignty and territorial
integrity. It has maintained India’s historically close ties to Moscow,
increasing Russian oil imports and receiving Foreign Minister Sergey
Lavrov on a diplomatic visit in April.
This decision born of its historic strategic partnership with
Russia. This alliance, harking back to Cold War times, spans
several fronts—diplomacy, defence, nuclear energy, and
technology—making Russia a pivotal part of India’s nation-
building process, especially during its infancy.
If you thought we could start a new year without COVID or an
impending international conflict, think again.  
As we speak, Russia has reportedly amassed about 100,000
troops at its border with Ukraine, and another 30,000 are in
Belarus for massive war exercises. NATO- the North Atlantic
Treaty Organisation countries are also deploying troops to their
Eastern flank countries- like Romania and Poland- the U.S. is
sending 3,000 more troops. Meanwhile, diplomacy to avert a
full crisis is on as well- and amidst visits including US officials in
Europe, the British PM in Ukraine, the Hungarian PM in
Moscow and another possible Biden-Putin calls….all eyes on
the next round of Normandy talks, expected in Berlin- where
Russian and Ukrainian security advisors will meet, along with
German and French advisors for talks on de-escalating the
situation. 
How is India affected by this situation? 
After remaining quiet for more than a month- India made two
statements last week on the Russa- Ukraine tensions-
appealing for a diplomatic resolution to the crisis. At the United
Nations, India abstained from a procedural vote on whether to
discuss the situation- a vote that Russia lost- with a U.S.-led
group of 10 countries agreeing to the discussion. India’s vote
was seen as a play to both sides, but it came after Russia-India
consultations in Delhi, and was seen as a tilt towards Moscow. 
New Delhi’s greatest concerns are: 
1. World War scenario: Any conflict- where the U.S. and its
European allies are ranged against Russia will impact the
whole world- economically and in terms of security, and India,
as a partner to both Moscow and Washington will either have to
take sides, or be prepared to deal with unhappiness from both
sides.  
2. S-400 delivery and US waiver: The crisis comes precisely as
India’s purchase of the Russian S-400 missile system is under
way- and New Delhi hopes for a waiver of U.S. sanctions on
this. Conflict will complicate both the delivery of the system,
and the possibility of a presidential waiver. 
3. Moves focus from China: Just as U.S. and Europe had
grown more focussed on their Indo-Pacific strategy that puts
India centre-stage, and India grapples with Chinese aggression
and land-grab at the Line of Actual Control, and 100,000 troops
along the boundary on both sides, the world’s attention is
diverted from China to Russia.
4. Brings Russia China closer- the Crisis will make Moscow
more dependent on friends like China, and build a regional bloc
of sorts that India is not a part of. In Beijing this week, the future
seems evident- as India has announced a diplomatic and
political boycott of the Olympic games- while Putin, Central
Asian Presidents, and Pakistan PM Imran Khan are all in
Beijing to stand in solidarity with Xi Jinping.
5. Energy crisis: In any conflict- Europe worries Russia will turn
down gas and oil supplies- driving energy prices up. Already
tensions have pushed oil prices up 14% in a month past $90
and analyst say they could hit $125 a barrel if the situation is
not resolved. 
6. Indians in Ukraine: As India’s UN envoy pointed out in his
speech- India has more than 20,000 nationals in Ukraine,
mostly medical students, as well as business professionals in
the field of pharma, IT and engineering- and the government is
concerned about their safety in the event of a crisis, although
MEA says it is not at present evacuating citizens. 

How the war has affected indias econmy

1.Immediate Adversities
2. Crude Oil & Gold Prices
3. Higher Inflation
4.Favourable movements on commodities which India exports
.5 Potential Opportunities for India
6Increasing interest rates
7Share market
8Defence sector

The BFSI sector of any country is impacted by national macro ..

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1. Immediate Adversities: a. As the conflict broke out, Sensex crashed

by 2700 points due to panic selling, nervousness amongst the
investors leading to Rs. 7.5 lakh crores being wiped off from the stock
market. The Russian stock market nose-dived by 50% which in turn
had a significant impact on all the Asian stock markets. The conflict
also triggered the gold & crude oil prices which were almost at their
highest which we shall discuss further.

2. b. India has limited connects relating to banking & corporate sector

with both the countries so impact shall be negligible on such areas,
as per the report given by SBI. Various Non-Russian organizations
operating in Russia terminated their operations due to the conflict,
and majority of them were from or related to US, for example PayPal,
Mc Donald’s, Disney, et cetera.

2. Crude Oil & Gold Prices:

a. Russia is the one of the largest crude oil producers in the world & due
to the sanctions imposed by the US on Russia, crude oil prices are
expected to rise further due to the ongoing tensions. The sanctions may
also lead to an increase in the crude oil prices, and it has already
crossed the $100 per barrel mark ($108 as on 5th May, 2022), which is
highest since 14 years & its price was already up by 45% in the first 6
months of 2021(was rallying to $80 per barrel). But there shall be a
negligible impact on India as of now as India imports most of it’s oil
needs, but majority of it comes from Middle East as logistics &
transportation is cheaper due to the geographical positions of countries.
Russia has a large area covered where it can supply oil through pipeline
to the Europe & neighbouring countries, through road to the countries
residing in the south of Russia & via sea route to the western countries
through Alaska.

b. Gold prices also spiked to $2000 per ounces. During the conflict, the
equity market became volatile, so many of the investors shifted from
equity & other investments to gold investments as gold is considered as
a safe haven during such situations. Such market sentiments were also
one of the factors which lead to an increase in the gold prices & fall in
the equity & other markets. c.
On 30th March 22, Russia has also decided to peg the Russian ruble
with gold, where 1 gram of gold = 5000 rubles till 30th June 2022. So,
because of this, Russian ruble has already gained its lost valuation back
& there is a good possibility that it’s valuation may even increase further.
As ruble is gaining its valuation back, Russia may also increase its gold
supply, it may even strengthen the ruble further. Russia is 3rd largest
gold supplier in the world & it may be able to increase its gold supply
easily. In simple terms, if ruble gains significant valuation, demand for
US Dollar may decrease as it would be costlier buy gold in terms of
dollars as compared to ruble & people may shift from dollar to ruble.

3. 3. Higher Inflation:
a. Due to this ongoing conflict, petrol & diesel prices are already on the
peak. Prices of the commodities in India are highly influenced by the
petrol & diesel prices. When the prices of the petrol & diesel are
increased, the transportation & logistics costs will also increase which
will lead to an increase in the prices of the domestic as well as
international commodities. Oil prices are also expected to rise further.
Because of this, India will have an adverse impact as India imports
around 80% of its oil needs. India imports $205 Billion worth of oils &
minerals, $832 Million worth of precious stones, $609 Million worth of
fertilizers from Russia, so increase in the prices of such commodities
may lead to considerable inflation in the country.
b. Russia supplies crude oil, natural gas, and other resources to most
of the Europe, and Russia is also one of the largest wheat producers
in the world & accounts for more than 18% of the international exports,
India also imports 84% of the sunflower oil from Russia and if all these
supply chains are halted, it will have a significant negative impact
leading to inflation & such other circumstances.
The study analysed responses of 800 people in India and 11,000
people across 19 countries. The Russia-Ukraine war is the biggest
concern in India for 37% Indians, although it is significantly lower than
the global average of 64%. The cost-of-living crisis is the second
biggest concern on people’s minds and price increases in fuel, food
and drink and household bills have been noticed the most. Compared
to the world, Indians feel the pinch of price increase on white goods
more.

"When it c ..

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4.Favourable movements on commodities which India exports: a.

Russia & Ukraine, both are one of the major grain producers &
exporters around the globe, and due to this conflict, exports relating
to such commodities are being halted & there is a potential vacuum in
the market. For instance, Russia & Ukraine are one of the leading
wheat producers in the market, but due to war, supply of wheat is
getting disrupted, so here vacuum is already being filled by India by
increasing wheat exports.
 b. Wheat from Gujarat, Rajasthan & Uttar Pradesh is being delivered
at Rs. 2,400 to Rs. 2,450 per quintal as against Rs. 2,100 per quintal
or so, that too in the span of hardly 15 days. The only thing to
consider Indian Government needs to carefully manage both, India’s
overall domestic stock availability as well as exports. Prices of edible
oil, vegetable oil, oilseeds are also skyrocketing.
c. There is also a potential availability of benefit to the mustard oil
growers in Rajasthan & Uttar Pradesh, who are set to market their
crops in the coming weeks. At present the mustard prices are ruling
above Rs. 6,500 per quintal which is above minimum support price of
Rs. 5,050 per quintal. Cotton prices are also elevated because
synthetic fibre is getting costlier. Brent crude oil is one the largest
factor for uplifting prices of the above-mentioned commodities as well
as other commodities. India must carefully observe & analyse the
current scenario, and act accordingly, so that there may be a potential
possibility of favourable outcome in many such areas from this
ongoing conflict
effecton indias import and export
Commerce minister Piyush Goyal informed the Lok Sabha on Wednesday,
"Disruption of exports from these countries does provide India an opportunity
to increase our export of wheat."
However, the conflict is expected to hurt major items of export from India to
Russia.
These include Pharmaceuticals, Telecom Instruments, Iron and Steel, tea,
chemical products and import is petroleum, pearl and semi-precious stones,
coal, fertilizers and vegetable oils.
Similarly, major exports from India to Ukraine -- pharmaceuticals, telecom
instruments, groundnut, ceramic, iron and steel and imports are vegetable
oils, fertilizers, inorganic chemicals, plastic and plywood and allied products --
are bound to take a hit.
The bigger concern for the government is the possible shortage of items
critical for the manufacture of fertilisers and metals in the manufacturing of
items including refrigerators and air conditioners.
INDIA'S EDIBLE OIL MARKET
The ongoing Ukraine-Russia conflict has shaken India's already stressed
edible oil market.
India gets more than 90 per cent of its sunflower oil from Ukraine and Russia.
It is feared that retail prices might worsen if the war continues to drag for long.
In the financial year ending March 2021, India imported about 13.35 million
tonnes of edible oils worth more than $10.5 billion.
Of this, palm oil accounted for about 56 per cent, soybean oil for 27 per cent
and sunflower for about 16 per cent.
CHEAPER COAL IMPORTS
Next, Russia has traditionally been India's sixth-largest supplier of cooking
and thermal coal.
With Russia facing sanctions by the West, it's expected that the country
might offer more competitive prices to Indian buyers. This could mean
cheaper coal imports.
INDIA'S TEA EXPORTS
One of the biggest losers due to the conflict could be India's tea sector, as
Russia imports almost 13 per cent of India's tea exports.
With India importing almost 4 times more from Ukraine compared to its
exports to the country, the war may hit exports but offers an opportunity for
domestic manufacturers.
Piyush Goyal told the Lok sabha, "The Department of Commerce is apprised
of the present situation and holding regular consultation with all stakeholders
to ensure availability of essential imports."
EFFECT ON EXPORTS FROM INDIA
Piyush Goyal informed the lower house that as per the feedback received
from the industry, exports of some products from India are likely to be
affected.
He said that the major items of export from India to Ukraine are
pharmaceuticals, telecom instruments, groundnut, ceramic, iron and steel and
imports are vegetable oils, fertilizers, inorganic chemicals, plastic and plywood
and allied products.
Piyush Goyal, however, said that a more precise implication of the post-war
scenario can be assessed only after the situation stabilises.
The government raised concerns over India's imports and exports amid the
ongoing Russia-Ukraine war. Russia had launched a full-scale invasion of
Ukraine on February 24, with the aim to "demilitarise and denazify" the
country. Experts fear that the war in Ukraine might affect trade in India.
Live TV

. 5. Potential Opportunities for India: a. During this conflict, US & its

many ally-based organizations decided to terminate their operations
in Russia. SWIFT (Society for Worldwide Interbank Financial
Telecommunications) is an international organization which is
connected with more than 200 countries & 11000+ banks worldwide,
handled more than 4 crore transaction in a single day, decided to cut
ties with Russia.
b. There is a vacuum due to this situation, and it can be filled by
India’s own UPI (Unified Payments Interface). UPI usage has grown
 considerably in the past few years, and UPI has even developed to
an extent where digital payments can be made even without internet.
UPI in financial year 21-22, crossed $1 Trillion mark in transactions If
UPI is able to fill such vacuum it shall be a great leap for India in the
finance sector by UPI being the vacuum filler & replacing SWIFT in
Russian market.
c. Nepal also adopted UPI for P2P payments thereby helping its
businesses in achieving growth. NPCI (National Payments
Corporation of India) needs to onboard as many people & banks as
soon as possible because India needs to become a superpower
without majorly depending on weapons. Also, past few days ago,
RuPay card was launched in Nepal after Bhutan, Singapore & United
Arab Emirates. If India upshifts this to another level & on a larger
scale it might be able to capture such markets in larger countries like
Russia as well
. d. The Aviation Industry is also grounded in Russia as large number
of aircrafts may be on lease agreements that may be suspended or
insurance cover is stopped as home country are bent on making the
sanctions hurt. India may help its ally by sending in some aid &
thereby establishing itself in such industries leading to increase in the
forex exchanges & revenues from such operations.
Case study
Russian importers seek deals with India's smaller firms to
sidestep sanctions

Russian importers are reaching out to small Indian businesses to secure

fresh produce, auto parts, medical devices and other key goods that are
growing scarce due to international sanctions, people familiar with the
matter in both Russia and India said.

Private sector players in Russia have met with potential suppliers in

India's big cities and are opening specialised bank accounts at home for
roubles-to-rupees transactions, with the blessing of the two
governments, the sources said. < ..
As the Ukraine conflict drags on and sanctions tighten around Russia's economy, the stakes
have risen both for Russian businesses needing overseas goods and for big global companies
wanting to avoid those businesses, lest they run afoul of sanction rules.
In India, one of the most prominent world economies to continue trade with Russia, this has
put the spotlight on small and medium enterprises (SMEs) as a potential trade route that,
while limited in size, could remain under the sanctions radar.

It is absolutely clear that large Indian conglomerates having exposure to the West will not
conduct business with Russian companies,"
"But SMEs can export and settle payments through banks that are not under the Western
sanctions regime."

The official, who requested anonymity because he was not authorised to speak to the media,
said representatives from Russian chambers of commerce were travelling to New Delhi,
Mumbai and Bengaluru to identify companies willing to set up new subsidiaries or joint
ventures to export goods to Russia.

They are especially seeking consumer durables, spare parts for the transport sector, medical
devices, construction materials for large infrastructure projects, and frozen food ahead of the
winter season, the official said.

Among them was a Russian trader in Mumbai this week to meet exporters of vegetables and
spare parts for the public transport sector.
"We are not facing any food shortages right now but it is critical to secure a steady supply
chain in the next 60 days," the trader said.

Three other senior government officials and one banking official based in New Delhi,
Moscow and St. Petersburg said Russian companies were actively opening accounts in
Commercial-Indo Bank LLC, a joint venture between two Indian banks with headquarters in
Moscow.

ROUBLES-TO-RUPEES
These so-called Nostro accounts, used in the Soviet era mainly to settle international
transactions by converting home currency to a foreign currency, provided a direct roubles-to-
rupees payment mechanism for trade between the two countries when tensions were high
between Washington and Moscow.

Officials at the Commercial-Indo Bank and its two parent banks, the State 
Bank of India
 And Canara Bank
 NSE 0.20 % , did not respond to questions from Reuters.

The Indian embassy in Moscow and Russia's industry and trade ministry declined to
comment. India's trade and foreign ministry did not comment.

A senior government official with close knowledge of the matter in New Delhi added that
Russia was offering dedicated ships for cargo along with insurance and re-insurance, since no
European bank would provide it, although sources at India's finance and foreign ministries
said terms were still under discussion.

New Delhi has not joined the widespread condemnation of Russia, its second-largest supplier
of defence equipment and a valued source of oil imports, as well as a potential export market.

"But it is critical to ensure that the West does not get upset with India's increased economic
involvement, as New Delhi cannot jeopardise its ties with the West," said Nandan
Unnikrishnan, the head of Eurasian Studies at Observer Research Foundation, a private-
sector think tank.

India's total merchandise trade with Russia is relatively modest, at about $8.1 billion in 2021
or about 1.2% of India's total trade, although two Indian officials estimated that exports to
Russia would rise by more than $500 million in the next three months, as trade channels open
up for small Indian businesses.

An Indian exporter in Kolkata, who requested anonymity due to the sensitivity of the matter,
said that after war broke out many traders stopped dealing with Russian buyers, fefearing
defaults, but their wariness was easing.

"People have started selling goods to Russia again, and in the past few weeks Russia has
ramped up purchases of tea and coffee."

Stricter Banking Rules For Exporters

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Share Market Volatility

As gl ..

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