It’s been almost 100 days since the Russia-Ukraine war marred the Indian economy. With the invasion, prices of essential commodities rose, and along with it, the annual inflation rate went up to 7.8 per cent in April this year, highest since May 2014. Vanaspati oil, wheat, mustard oil and sugar were the most impacted commodities due to this crisis.
Price of Vanaspati oil on May 31 this year was 26.6 per cent higher than the same day in 2021 whereas wheat was 14.3 per cent higher. Prices of mustard oil and sugar were 5.1 per cent and 4.1 per cent more than the corresponding day in the last year.
As if the rise in prices of commodities was not enough, rise in crude oil prices only exacerbated the already worsening situation. At the beginning of 2022, brent crude prices stood at around $80 per barrel. Soon after the Russia-Ukraine crisis hit global economy like a thunderbolt, brent crude went as high as $128 per barrel. Crude oil prices scaled a new high with brent crude reaching $122.8 per barrel on May 31.
Markets have also been heavily impacted by the ongoing standoff between Russia and Ukraine as foreign portfolio investors (FPIs) pulled out over Rs 1 lakh crore from the Indian markets in the three months since the stalemate began, Rs 50,000 crore more than the combined withdrawal of previous nine months.
Other cause for heavy selling by foreign investors in Indian markets are monetary tightening around the world due to inflation. foreign portfolio investments (FPI) pullout has led to the depreciation of the Indian rupee versus the US dollar. Rupee depreciated by approximately 4 per cent from 77.53 against the US dollar on February 24, when the war began, to 77.7 against the dollar by May 31. Weak rupee has also impacted imports adversely, especially oil imports.
India’s GDP numbers have also felt the impact of the ongoing Russia-Ukraine war. Experts believe that inflation will be a persistent issue for a while and the economy has been tackling a surge in prices for a while now.
Deloitte India Economist Rumki Majumdar told news agency PTI, “The government’s intervention in the form of duty cuts on imports, subsidies on fertilisers and cooking gas, duty cuts on fuels to protect customers and businesses from high inflation is likely to impact the fiscal deficit in the coming quarters.”
While government of India’s chief economic adviser V Anantha Nageswara Rao acknowledged heightened inflation, he ruled out stagflation completely. The CEA told Reuters, “Inflationary pressures will remain elevated.” Stagflation refers to a situation wherein a country’s economic growth slows, demand falters and unemployment rises despite rising inflation.
(With DIU, agency inputs)