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Russia-Ukraine conflict would push India’s import bill, stoke inflation: Ind-Ra

Amid supply concerns following Russian attack on Ukraine, global crude prices have surged and analysts predict the trend to continue should the conflict persists.

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New Delhi: Geopolitical risks arising from the Russia-Ukraine conflict would push the import bill higher for items such as mineral fuels & oils, gems & jewellery, edible oils and fertilizers as India has significant import dependence on these items, India Ratings and Research (Ind-Ra) said on Tuesday.

“As a result, merchandise imports may cross $ 600 billion in FY22,” the rating and research firm said. It sees rise in inflation, increase in current account deficit and rupee depreciation as immediate impact of the conflict on the Indian economy.

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Amid supply concerns following Russian attack on Ukraine, global crude prices have surged and analysts predict the trend to continue should the conflict persists. India being highly dependent on other countries to meet its energy needs, it is set to see the import bill swelling and hence higher trade deficit.

Crude oil prices have stayed above $100 a barrel for the past several days. Ind-Ra’s analysis suggested that a $5 per barrel increase in crude oil prices will translate into a $ 6.6 billion increase in trade/current account deficit. Besides fuel, other commodities such as steel, copper, aluminium are also expected to see hardening in prices.

All this together would stoke price rise across product categories. Ind-Ra said that the Russia-Ukraine conflict also has the potential of triggering capital flight from emerging markets to safety. Further, it said that this can result in weakening of the Indian rupee.

“Furthermore, many other macro parameters such as inflation, fiscal deficit and public debt are quite high but Ind-Ra believes it is unlikely to trigger any weakness in the rupee similar to 2013 (tapper tantrum). The buildup of forex reserves to the tune of $ 632.95 billion (as on 18 February 2022) to a large extent is expected to provide the much-needed cushion,” it said.

“However, high inflation and weak currency are a perfect combination for interest rate to harden and with elevated public debt (higher than 2013 crisis) it will certainly bring back the debt sustainability issue at the centre stage,” Ind-Ra added. 

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