Bikky Khosla | 08 Mar, 2022
The Russia-Ukraine war has begun to take toll on the
Indian economy. Several indicators are, in fact, signalling that the conflict,
if continues for a prolonged period, may prove catastrophic. The Rupee closed
at a record-low against the US dollar on Monday. Rising crude prices and FII outflows
are posing challenges as well, and these factors may impact our inflation and
fiscal deficit situations, complicating the challenge further.
The Rupee saw a steep fall to close at 77.01 against
the US dollar on Monday. In 2022, it has remained one of the worst performing
currencies in the emerging markets, and now its further fall deteriorates the
situation. According to some economy watchers, the central bank may allow further decline in Rupee with
expectation that it would
boost export competitiveness, but this situation cannot be allowed
to continue for a much longer period.
Meanwhile, oil prices have soared to
the highest level since 2008 due to the ongoing tensions. Brent crude - the
global oil benchmark - spiked to above $139 a barrel, before easing back to
below $130, on Monday. This steep rise is likely to deeply impact India, which
imports around 86% of its annual crude oil requirement. According to an
estimate, the economy is expected to incur an additional $70
billion burden at an average crude price of $120 per barrel.
Besides the spike in crude prices, high
prices of other commodities – including coal, metals and crops –along with
foreign fund outflows, are expected to weaken the Rupee further, thus raising
inflation and fiscal deficit. Amid these concerns, an early diplomatic solution
to the Russia-Ukraine crisis is eagerly awaited. Our government should also
closely monitor the situation to ensure timely preventive measures to safeguard
the domestic economy.
I invite your opinions.