It was hard to speculate that the Russia-Ukraine war would have such widespread economic consequences across the globe. It’s been more than three months and the war is going on seamlessly, impacting global trade.
In April, the World Trade Organisation (WTO) revised down its forecast for global trade growth this year to 3 per cent from 4.7 per cent because of the impact of the war and it also warned of a potential food crisis. But most companies and businesses have now found ways to overcome hurdles caused due to the war.
In an exclusive conversation with India Today TV in Davos recently, Birla Group Chairman Kumar Mangalam Birla, said, “Inflation is a global phenomenon, prices are rising not just in India but in many countries. Our government is reacting very fast. They have taken many steps to rein in inflation. I am very positive about India’s growth. India is the fastest growing economy.”
IMPACT ON INDIAN ECONOMY
As the world witnessed the Russia -Ukraine war, Indian traders, especially those involved in the export of pharmaceuticals, telecom instruments, groundnut, ceramic, iron and steel, tea, chemical and import of vegetable oils, petroleum, fertilizers, inorganic chemicals, plastic and plywood and allied products had sleeplessness nights.
Pharmaceutical companies—Sun Pharmaceuticals and Dr Reddy’s Laboratories have production facilities in Russia and offices in Ukraine. Pharma companies dealt with volatility in active pharmaceutical ingredient (API) prices.
Indian pharma industry depends on imports for 90% of its API needs and with sanctions imposed on Russia supply chain was badly hit.
Data from the Pharmaceuticals Export Promotion Council (Pharmexcil) showed that in 2020-21, pharma exports to Russia and Ukraine amounted to $591 million and $181 million, respectively.
There are three broad reasons how the war has impacted trade.
First, the withdrawal of credit guarantee protection on commodities. Second, removal of seven Russian banks from the SWIFT international banking system, which created a huge payment problem.
Created in 1973 and based in Belgium,the Society for Worldwide Interbank Financial Telecommunications (SWIFT) has more than 11,000 participating member banks and financial institutions from 200 countries, and makes global trade and finance possible.
Third, the disruptions at Baltic ports amid the Ukraine war. Movement of ships through the Black Sea has been hit, leading to huge supply-demand gap.
WHEAT HARVEST ON THE RISE
Amid the raging war, India’s wheat harvest is expected to rise to 110 million metric ton in the crop year 2021-22, from 108 million metric tons a year ago, revealed an S&P Global Platts survey.
Russia is the world’s top wheat exporter, while Ukraine is fifth in the row. Both Ukraine and Russia account for more than 25% share in global wheat trade. With both countries at war, the government tackled the situation on war footing on two fronts.
Firstly, government increased wheat harvest for domestic consumption. Secondly, government banned wheat export.
High inflation and a lower wheat production estimate prompted the government to suspend the global sale of wheat. The latest government estimate shows that wheat production will be five per cent lower (105 MT) than last year (109.6 MT).
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In April, consumer inflation hit an eight-year record in India at 7.79 per cent, with a major jump in food (8.38 per cent) and cereal inflation (nearly six per cent).
In FY 22, India exported a record 7.85 million tonnes of wheat. It was a 270% jump from 2.1 million tonnes the previous year.
The government says the main reason for the ban was to manage the overall food security of the country and to support the needs of the neighbouring and other vulnerable countries.
It comes against the backdrop of the hottest March in 122 years, leading to a considerable drop in yields.
Atta, the most commonly used food item in Indian kitchens, is seeing a massive surge in prices, so much so that rates have reached a decade high. The all India monthly average retail price of wheat flour stood at Rs 32.38 per kg in April, the highest since January 2010.
Experts are attributing the price rise due to a fall in production as well as stocks of wheat in the country. While the production has fallen in the country, in tandem the demand has risen outside the country.
The price rise has had a domino impact. Along with wheat flour, the prices of bakery products, biscuits and bread too have registered a sharp increase in recent months. Retail inflation for bakery bread was 8.39 per cent in March this year, the highest in the past 7 years.
Steps taken by the government – to ban wheat export and to increase procurement, helped in cooling down prices.
TACKLING EDIBLE OIL MARKET
India gets more than 90% of its sunflower oil from Ukraine and Russia. In the financial year ending March 2021, India imported about 13.35 million tonnes of edible oils worth more than $10.5 billion.
Of this, palm oil accounted for about 56 per cent, soybean oil for 27 per cent and sunflower for about 16 per cent.
The Indian government exempted customs duty and agri cess on yearly import of 20 lakh MT each of crude soyabean and sunflower oil till March 2024.
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The duty-free import of 20 lakh MT per year will be applicable for two FYs (2022-23, 2023-24) for crude soyabean oil and crude sunflower oil.
The government took these steps as the country is the world’s biggest vegetable oil importer and these measures helped in keeping a lid on local prices.
Russia imports almost 13 per cent of India’s tea exports and the war definitely gave sleeplessness nights to tea exporters.
After halting for 2 months, India’s exports to Russia have resumed. Containers carrying – tea, rice, fruits, coffee are reaching Russia largely through ports in Georgia.
Ashwin Shah, director of Shah Nanji Nagji Exports, said, “The operations have resumed. We have shipped 60 containers of non-basmati rice to Russia, each weighing 22,000 kg.”
India’s exports of tea to Russia were US$84.91 Million during 2021, according to the United Nations COMTRADE database.
After months of uncertainty and dealing with price rise, prices of commodities and availability of products has become easier.