The ongoing conflict between Russia and Ukraine has been a cause of concern for the global community. As the world watches the escalating tensions between the two countries, the impact of this crisis is being felt across many regions. One such region that may be affected by this conflict is India. India’s budget for 2023-24 may be significantly altered due to the ongoing war between Russia and Ukraine. In this article we will discuss about How Russia-Ukraine War alter India’s Budget 2023-24.
Quick Look
The ongoing conflict between Russia and Ukraine has had an effect on not just the political and economic climate globally, but also on India’s forthcoming budget for the years 2023–2024. The price of commodities like crude oil, natural gas, and other essentials for India’s economy has significantly increased as a result of the crisis. The government may take a number of actions to lessen the effect, including diversifying its energy sources, emphasizing renewable energy, and spending money on infrastructure. These actions can encourage self-sufficiency in important industries and help India become less dependent on imports.
Russia and Ukraine War: Origin of Dispute
Ukraine is a democratic country with a history that dates back more than 1000 years. Also, in terms of land size, it is Europe’s second-largest country after Russia. Ukraine is seen as a gateway to Europe and shares a border with Russia; hence, its geographical location is crucial. Ukraine firmly chose independence from Russia following the fall of the Soviet Union. Ukraine has also shown interest in joining NATO, a defensive military alliance of 30 European nations. Following the toppling of a pro-Russian government in Ukraine in 2014, Russian President Vladimir Putin sought guarantees from Western nations and Ukraine that the country would not join NATO.
The drama began when Ukrainian President Volodymyr Zelensky pleaded with US President Joseph Biden to enable Ukraine to join NATO in January 2021. This has irritated Russia, causing escalating tensions between the two countries to escalate into a war-like scenario, if not a full-fledged battle.
Russia and Ukraine War: India’s Domino Effect
This disastrous and dangerous tendency has far-reaching implications and a domino effect for the entire globe, including India. An increase in fuel costs is the most major macroeconomic headwind for India. Due to risk aversion, crude oil has surged above $105 per barrel, while gold has topped $1,900. The resulting inflation may drive the Reserve Bank of India to hike interest rates. Because of escalating border tensions between Eastern Europe and Russia, bilateral trade between India and Ukraine is becoming more crucial.
Pharmaceuticals account for the vast proportion of Indian exports to Ukraine. India is the third-largest supplier of pharmaceutical commodities to Ukraine in terms of value, after only Germany and France. Numerous Indian companies have representative offices in Ukraine, including Ranbaxy, Dr. Reddy’s Laboratories, and Sun Group. The Indian Pharmaceutical Manufacturers’ Association was founded in Ukraine by representatives from major pharmaceutical companies (IPMA).
Sunflower oil is India’s top export, followed by inorganic chemicals, iron and steel, plastics, and chemicals. This is the primary reason why the shares of all pharmaceutical enterprises and cooking/sunflower oil companies, as well as the benchmark BSE and Nifty indexes, have dropped to historic lows.
Russia and Ukraine War: The impact of the Russia-Ukraine war on India’s Economy
India’s economy is closely tied to the global economy, and any major geopolitical event can have a ripple effect on it. The Russia-Ukraine war has already caused an increase in crude oil prices, which will affect India’s import bill. India imports a significant amount of crude oil from Russia, and any disruption in supply could lead to a rise in prices, which would in turn increase the cost of transportation and affect the prices of goods and services.
The war could also lead to a disruption in trade relations between India and Russia, as well as other countries in the region. This could affect India’s exports and imports, leading to a decline in trade and a negative impact on the country’s balance of payments.
Another potential impact of the conflict could be on the value of the rupee. If the conflict leads to a flight of capital from emerging economies, including India, it could lead to a depreciation of the rupee, which would make imports more expensive and affect the country’s trade deficit.
Russia and Ukraine War: How Russia-Ukraine War alter India’s Budget 2023-24?
As the world watches the escalating tensions between the two countries, the impact of this crisis is being felt across many regions. One such region that may be affected by this conflict is India. India’s budget for 2023-24 may be significantly altered due to the ongoing war between Russia and Ukraine.
- Impact on Energy Prices: India is a major importer of oil and gas, and any changes in energy prices can have a significant impact on the country’s economy. The conflict between Russia and Ukraine has already caused a spike in global energy prices due to concerns about supply disruptions. This increase in energy prices will have a direct impact on India’s budget for 2023-24, as the country will have to spend more on energy imports, leading to a rise in inflation and possibly affecting the growth rate of the economy.
- Defense Spending: The conflict between Russia and Ukraine has already caused India to ramp up its defense spending, with the government allocating more funds towards the purchase of weapons and equipment. The country is already facing an increasing threat from China, and the conflict between Russia and Ukraine has added another layer of complexity to India’s strategic planning. The Indian government may need to allocate more funds towards defense spending in its budget for 2023-24 to prepare for any possible contingencies.
- Impact on Foreign Policy: India has maintained a neutral stance on the conflict between Russia and Ukraine. However, the country’s foreign policy may be impacted by the outcome of this conflict. If the conflict escalates and leads to a wider conflict, India may be forced to take sides. This could have an impact on India’s relationships with Russia and Ukraine and its standing in the global community. The country’s foreign policy priorities may need to be reassessed in the wake of this crisis, which could lead to changes in its budget allocation for foreign affairs.
- Economic Impact: The conflict between Russia and Ukraine has already had a significant impact on the global economy. If the conflict continues, it could have an even greater impact, leading to a global economic slowdown. This could have a direct impact on India’s economy, which is already facing challenges due to the COVID-19 pandemic. A global economic slowdown could lead to a decrease in demand for Indian goods and services, affecting the country’s growth rate and revenue generation. The Indian government may need to allocate more funds towards boosting the economy and mitigating the impact of the global economic slowdown in its budget for 2023-24.
- Impact on Oil Prices: India is the world’s third-largest oil importer, and any changes in oil prices can have a significant impact on the country’s economy. The conflict between Russia and Ukraine has already caused a spike in global oil prices due to concerns about supply disruptions. This increase in oil prices will have a direct impact on India’s budget for 2023-24, as the country will have to spend more on oil imports, leading to a rise in inflation and possibly affecting the growth rate of the economy.
Steps that India could take to minimize the impact of the war on its Economy
The following are the steps that India could take to minimize the impact of the war on its Economy:
- Diversify Import Sources: India could reduce its dependence on Russian oil by diversifying its import sources. The government could encourage companies to explore alternative sources of oil, such as the Middle East, Africa, and the United States. This would reduce India’s vulnerability to any disruption in supply from Russia.
- Focus on Domestic Production: India could focus on increasing domestic production of goods and services, reducing its dependence on imports. This would not only reduce India’s vulnerability to external shocks but also create jobs and stimulate economic growth.
- Strengthen Trade Relations with other Countries: India could focus on strengthening trade relations with other countries, such as China, the United States, and European Union countries. This would provide alternative markets for India’s exports and reduce its dependence on Russian trade.
- Monitor the value of the Rupee: The government could monitor the value of the rupee and take appropriate measures to prevent depreciation. This could include using foreign exchange reserves to stabilize the currency and providing incentives to attract foreign investment.
- Increase Defense Spending: Given the conflict in the region, India may need to increase its defense spending to ensure its security. This could lead to a temporary increase in government expenditure, but it would be necessary to protect the country’s interests.
Takeaway
The Russia-Ukraine war has the potential to impact India’s economy, but the government can take steps to minimize its effects. By diversifying import sources, focusing on domestic production, strengthening trade relations with other countries, monitoring the value of the rupee, and increasing defense spending, India can prepare itself for any potential shocks. It is important to remain vigilant and take appropriate measures to protect the country’s economic interests.
