Significant Impact on Inflation in India caused due to Russia-Ukraine Crisis

The Ukraine attack could result in higher oil prices, posing a risk to India's growing economy and affecting the current supply constraint.

Significant Impact on Inflation in India caused

Domestic macroeconomic conditions are striking a method that is detaching them from global events,” according to an article on the “State of the Economy” in the Reserve Bank of India (RBI) February 2022 notice. Perhaps, however, the impact of Russia's invasion of Ukraine, which began on February 24, could bring into question that assessment. And that's not all. On March 8, US President Joe Biden put an end to the dispute by prohibiting the import of Russian energy products.

Many observers believe that the impact on India's economy could be severe; others believe that India's economy is safe from the effects of a conflict that is occurring thousands of miles away. The stock market has reacted immediately, with major stocks plunging by large amounts.

Crude Oil Producing Countries

The Russia-Ukraine crisis could result in a higher price of oil, posing a further risk to India's rapid growth. Especially because India imports more than 80% of its oil requirements from Russia. The present recorded shortage — the difference between the quantity of work and goods imported and exported – will be affected by rising oil prices. Furthermore, the news from Russia has resulted in higher retail pricing for state-owned oil dealers, which might be substantial for the NDA administration.

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India's retail expansion increased to a seven-month high of 6.01 per cent in January, breaking above the upper barrier line set by the Reserve Bank of India. The rise was mostly due to growing food inflation in India, which hit a 14-month high of 5.43 per cent, and a huge base. 

The war also has had a negative influence on the lives of ordinary people like:

1. Value of Money was lost

Due to the loss of buying power, inflation encourages purchasers to search for a profit from their money. It motivates people to look for greater yields instead of putting their money in low-interest savings accounts. This is because buyers are afraid that the money they have may be lost.

2. Inequality

Low-income families could be particularly harmed by inflation. They spend the majority of their earnings. Therefore, cost increases typically consume a larger portion of their earnings. When the cost of necessities, such as food and lodging, rises, the poor struggle to buy them.

3. The Effect on Borrowing Costs

In this context, GlobalData predicts that India's consumer price inflation rate will be 6.04 percent in 2022, up from 5.14 percent in 2021. In May 2022, GlobalData raised its inflation rate forecast for India 2022 up 0.8 percentage points from its prior projection in February 2022, citing rising food and transportation costs. This has had an impact on borrowing costs as well. Increased interest rates on accounts, loans, and mortgages have rendered the average person impotent, with no ability to raise funds when needed.

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Key Notes made by the Indian Government until Now –

Finance Minister Nirmala Sitharaman recently stated in Mumbai that the Russia-Ukraine situation and a surge in unrefined petroleum prices posed a threat to the country's monetary soundness.

The news of the Ukraine conflict has resulted in a considerable increase in gasoline prices, which is expected to directly affect consumption that is further impacted by the pandemic. According to government estimates, private final consumption expenditure (PFCE) will be Rs 80.81 lakh crore in 2021-22, down from Rs 83.22 lakh crore in 2019-20.

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The major import of crude oil coming from Russia has indeed affected many sectors of the Indian economy. The Russia-Ukraine crisis has a high impacting effect on Indian citizens as well, which has taught everyone that every country must have a second plan in hand which would not shake the country's economy. 


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