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Last updated: 08 Mar, 2022  

India.Growth.9.Thmb.jpg Russia-Ukraine crisis: India feels the heat

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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.

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