The Impact of the War in Ukraine on the Indian

 Economy:

The Indian Rupee recently plunged to a record low of 77.9 against the US Dollar amidst growing uncertainty within domestic equity markets. Two principal factors directly caused this decline in the value of the Indian Rupee. First, the large current account deficit that the Indian economy had incurred over many years. Second, a drop in Foreign Direct Investment since investors scamper to safe havens like the US following the onset of war in Ukraine. India has also banned wheat exports, quoting the risk to all-out security as the war worsens rising inflation rates. The move has consequently raised major concerns among foreign stakeholders: the wheat ban by India has increased wheat prices by six percent as Ukraine, a leading global breadbasket, cannot supply agricultural produce to the planet.

Some analysts hold the view that despite the prevailing crisis, the Indian economy will register high growth rates due to the "structurally robust nature of the Indian economy"—a matter of high tax collections, rapidly increasing service sector exports, and a mood of innate optimism within the markets because of sustained domestic demand. However, recent developments appear to indicate otherwise: namely, that the Indian economy has been hard hit by the war. The war has further deepened the existing vulnerabilities in the Indian economy domestically by compounding existing financial problems. The supply-demand gaps in the availability of essential daily goods to the consumers have been further extended by the war, coupled with which rising commodity inflation has dented the Indian economy. The Ukraine war underlined that the Indian economy cannot insulate itself from international shocks because India's market economy is so integrally linked with the world market that it represents a bundle of complex interdependencies. While the Indian market is fuel dependent today, this war has thrown up an opportunity for India to reassess its priorities and attempt a shift from a fuel-dependent economy to a greener one that would help reduce dependence on autocratic states.

Indian Economy in Crisis:

India “opened” its economy in 1991, taking the first step towards globalization. Consistent growth in the Information and Technology (IT) sector and the larger service sector increased India’s Gross Domestic Product (GDP), helping India clock high growth rates throughout the 1990s and 2000s. However, low real per capita income, high poverty rates, and dependence on fuel exports, coupled with continuous dependence on the inconsistent agrarian sector, was the collective Achilles’ heel of India’s economy through the late 2010s.

India has the opportunity to reassess its priorities and shift from being a fuel dependent economy to a greener one, reducing its dependence on autocratic states:

Though the Indian economy has managed to stay on track with a healthy GDP growth rate, the fiscal deficit in the Indian budget has also shown an alarming rise year after year, with little or no economic benefits trickling down to the poor through the conventional "trickle-down" effect. It has greatly widened the gap between the poor and the rich: a few have been taking up most of the growth benefits, leaving the majority deprived of its economic dividends.
The imminent financial slowdown has seen Indian financial institutions at the receiving end because as lenders, they have not been able to recover the borrowed capital. It has aggravated the problem of NPAs enough that it has warranted government intervention. Government funds resurrected fledgling banking institutions. These developments have left the Indian fiscal institutions cash strapped and exposed the reality of the "asset rich but cash poor" Indian middle class, that has often been denied access to liquid funds during economic downturns.

Economic Impact of the War:
The Russia-Ukraine war has further worsened the liquidity crisis that was already ailing the Indian economy. Consumer spending has been reduced because of limited access to cash; much of it is liquid due to the pandemic.  Big companies are unwilling to pump in money into the market given the possibility of limited returns, while consumers are unwilling to spend money due to limited access to cash.

An incremental increase in the price of essential oils, combined with an increase in the cost of crude imports, has hurt the Indian exchequer. Household diets have become the most visible signs of this emerging economic crisis. Commodities such as "sunflower oil," grown extensively in Ukraine and a staple in the normal Indian kitchen—have turned expensive on account of the ongoing war. According to India Today, "the surge in fuel prices has affected the prices of food items, especially perishable ones, thereby increasing logistic costs." This cycle has come to inform our understanding of the economic impact of the Russia-Ukraine war on India.

The rising cost of crude oil as a commodity has traditionally hurt the Indian consumer because the state has, over the years, overemphasized crude oil as a commodity over renewable goods. Successive governments have mademple, Indian consumers have had limited incentive to buy fuel efficient electric cars despite existing tax waivers because of their high costs. An electric car runs for over a million rupees in the Indian market at a time when an entire section of the population earns INR 10,000. This anomaly in price has led Indian consumers to purchase fuel-inefficient automobiles, increasing their dependence on fossil fuels. What has now happened is that this burden of payment has been most graciously transferred to the consumer, who has a very limited absorption capability at a time when interest rates on loans from the major institutions that support the citizenry—the banking ones—are increasing to protect themselves from the crisis.

This strategy comes when the existing annual budget did not take into account the fast-changing realities: projects on infrastructural development and urban planning dominate budgetary expenses, while economic support for the vulnerable was limited even after the pandemic. 

Short and Long Term Mitigation Strategies:
India can source Russianowards resolving the domestic crisis at home. As a fuel-dependent economy, "India needs oil to run the country" since oil is an everyday commodity that is used by masses and classes alike. While the move would further critiques of India falling into Russia's camp, it is in the best interest of India to continue supporting the Russian economy by buying oil at cheaper rates. Energy import costs will reduce due to India's purchase of Russian oil and help recovery of the India economy after the pandemic-induced slowdown. Since the "yellow revolution"—meant to make India self-sufficient in "edible oil production"—did not come up to expectations and edible oil remains one of the most extensively imported commodities, Indian purchase of oil from Russia could ensure that a basic cooking ingredient does not disappear from Indian kitchens.

In the long run, India should reduce its reliance on fossil fuels so that it is not caught in the crossfire between the West and Russia again—at least not on the question of energy security:

India should, in the long run, reduce dependence on fossil fuels so that she is not in the crossfire of some quarrel between the West and Russia, at least not over this question. In regard to achieving this aim, a multi-pronged approach may be adopted. States should, at present, offer one-time subsidies to their vulnerable populace in an effort to temper the impact of the crisis. It could be supplemented with initiatives aimed at building the Indian banking system in terms of asset quality concerns and balance sheets.
Finally, India could be shifted towards a greener circular economy by allotting Special Economic Zones only to greener enterprises. The government could also offer special incentives to the manufacturing community to capitalize on the opportunity afforded by the "lucrative Indian market." Ideally, manufacturers would curate their products to suit the needs of the Indian consumer—in terms of price and quality—thereby enabling every Indian to have an indigenously built "Indian electric car.".