Russia Ukraine War: Reasons for Conflict & Impact on India

The ongoing Russian Ukrainian war since February 24, 2022 is again derailing the world economy which is struggling to take-off after three phases of the Covid-19 pandemic. On the 12th day of Russia and Ukraine conflict, oil prices have soared to $135 per barrel, fuelling further the inflation in the war torn world. Apart from the global economic alarms, a key Russia Ukraine war impact on India is that the thousands of Indian students are stuck in Ukraine and are facing hardships in evacuation process as they find it very difficult to reach the Poland or Romania borders which are many miles away in the shadow of bombs, bullets and missiles.

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The Russia Ukraine war primarily involves Russia and pro-Russian forces on one side, and the small country of Ukraine on the other.  The Ukraine intervention is directly challenging the US and NATO. Russia has made it clear in its communication that any attempt to bring Ukraine into the NATO fold will have consequences. 

Ukrainian President Volodymyr Oleksandrovych Zelensky has urged European Union countries and President of USA to intervene and save the lives and Ukraine but nothing has happened so far. On March 7, 2022, the talks between Russia and Ukraine also could not succeed in cease fire. President Joe Biden and his administration did not give this assurance, which would have definitely de-escalated the situation. Instead, warlike stores were supplied, hoping that the Ukrainian forces would be able to stall the offensive. US / NATO have been condemning the intervention but have not clearly stated the red lines which might have disastrous effects globally. Thousands of Indian students in Ukraine are stuck, although Government of India is making all out efforts to evacuate them during this Russia and Ukraine conflict  

The cause of Russia Ukraine War
Russia has been supporting the separatists in the Eastern region of Ukraine and as per media reports, these separatists were being engaged by the Ukrainian forces. On their request, President Putin of Russia sent in the troops. The Putin – Xi Jinping meeting on the sidelines of the Winter Olympics seems to have been the occasion to orchestrate and set the stage for the Russian Ukraine Crisis. Both the leaders see the US and European leadership as weak and incapable of taking a hard decision.

In 2021 and early 2022, there was a major Russian Military build up around Ukraine's borders. NATO accused Russia of planning an invasion, which it denied. Russian president Putin criticized the enlargement of NATO as a threat to his country and demanded Ukraine be barred from ever joining the military alliance. He also claimed that Ukraine was a historic mistake created by the Soviet Union. On 21 February 2022, Russia officially recognised the two self proclaimed states in the Donbas, and sent troops to the territories. Three days later, Russia launched a full scale war against Ukraine.

Russian Ukraine Conflict has been seen as a serious breach of international treaties and a violation of a sovereign country. Russia believes Ukraine was an artificial creation of the Bolsheviks after Brest Litovsk in 1917 and “never had a tradition of genuine statehood”.

Despite a spree of sanctions announced by USA and other western countries, Russia is unlikely to stop the advancement. The West is unable to activate serious measures as it risks an asymmetric response, a lighter variant of ‘mutual assured destruction’ from the Cold War.

Post the implosion of the erstwhile USSR in 1991, the cold war era came to an end as most of the Warsaw Pact countries, having become independent countries, joined NATO. The US and its NATO allies are unable to find a concrete solution of the Russian intervention and Ukraine is left to fight against the many size bigger Russia. Europe has witnessed the cold war and with Russian Ukraine Crisis getting deeper, it wouldn’t want to be caught in this imbroglio. 

Global Impact of Russian Ukrainian War
The critical areas which need to be watched closely in view of Russian Ukraine war, are mentioned below.

• Disruption in Markets, Inflation and Supply Chains
• Oil prices could hit $120 to $140 per barrel, well above current levels. 
• Natural gas prices are also likely to keep climbing. Europe is a captive of Russian gas, and as a result, it may not eject Russia from the SWIFT system of international payments because it would suffer a more immediate crisis than Russia itself.
• Given the current high rates of inflation, and corresponding concerns about it feeding higher inflation expectations, it’s possible that this adds to the list of reasons for policymakers to raise interest rates.
• USA has threatened to cut off Russian access to the global market for semiconductor chips. But Putin has the means to cut off critical minerals and gases needed to sustain the West’s supply chain for semiconductor chips, upping the ante in the middle of a worldwide chip crunch.
• Russia could hobble the aerospace and armaments industry in the US and Europe by restricting the supply of titanium, palladium, and other metals. By controlling Ukraine, Russian control over key strategic minerals would be even more dominant, giving it leverage akin to Opec’s energy stranglehold in 1973.
• The region is a major global supplier of wheat, corn and sunflower oil and Ukraine’s rich, fertile soils have earned its nickname as the breadbasket of Europe. The country is the second-largest global grain shipper, while Russia often tops the ranking for wheat exports. Due to the conflict and Russian control, one can expect a diversion of Russian exports of commodities away from Europe and North America, and towards China. Some experts are estimating that 15 million tons of wheat exports from the Black Sea region could be at risk if there were disruptions. Ukraine may still have 7 million tons of wheat available to add to Russia’s export quota of 8 million tons.
• Russia is also one of the world’s most important sources of metals including aluminium and nickel. Aluminium consumers are already facing growing shortages during a booming period for demand, with surging orders from sectors including construction and packaging helping to drive inventories in European warehouses.
• Palm oil also rocketed to a fresh record in Malaysia, climbing past 5,800 ringgit ($1,386) a ton on concern the global vegetable oils market would tighten further. Russia and Ukraine make up 80% of global sunflower oil exports.
• Once you drill into the menu of western sanctions, it becomes painfully clear that the economic deterrent does not add up, either because the measures are less than they seem or because retaliation risk makes them unusable.

Russia Ukraine War impact on India
The Russia Ukraine war impact on India has certain indicators like financial markets, exchange rate and crude prices in the short-term, a recent report by State Bank of India (SBI) economists showed. The report also says that it will not have any lasting impact on the Indian economy.

A few days ago, finance minister Nirmala Sitharaman had flagged concerns over the after effects of Russia's invasion of Ukraine and said that never has global peace faced challenges of this significance since World War-II. "India's development is going to be challenged by the newer challenges emanating in the world. Peace is being threatened and after the Second World War, (a) war of this significance, this impact, on the globe probably is not felt," Sitharaman had said. The finance minister had assured that the government is closely monitoring the situation in Ukraine.

No Transactions for Russian Entities

• In a recent development, India's top lender SBI has announced not to process any transactions involving Russian entities subject to international sanctions imposed on Russia.
• Indian Oil Corp (IOC) said it would no longer accept cargoes of Russian crude and Kazakh CPC Blend cargoes on a free on board (FOB) basis due to insurance risk.
• The crude oil prices have soared past $100 per barrel, tracking uncertainty in global supply disruptions and India could be one of the majorly impacted countries since it imports 80 per cent of its crude oil from other countries.

Impact on Trade
India runs trade deficit with Russia, with exports declining while imports are increasing. Oil forms a major part of India’s import basket from Russia. The report said that 2.8 per cent of India’s total imports have been from Russia in FY22 so far.

India's merchandise trade position with Russia, Ukraine
2.8% of our total imports are imported from Russia in FY22 so far (Figures in Rs crore)

Source: SBI Research

• Electrical machinery and equipment is India’s major export to Russia. However, the total trade is not that much (Russia's share is 1.3 per cent of total trade) and it is India’s top 25th trade partner.
• The impact through trade channel would be limited.
• Every $10/bbl increase in oil price is likely to increase inflation by 25 bps and widen CAD as percentage of GDP by 35 bps.

Impact on Banking

• Banking sector has remained resilient to the Russia-Ukraine conflict so far.
• Profitability, asset quality and capital adequacy has risen to a new peak with profitability of banks in Dec'21 quarter, as well as YTD FY22 seen touching new highs.
• Apart from strong banking scenario, the SBI report showed there's adequate liquidity of Rs 7 lakh crore and appropriate cash balance of Rs 2.8 lakh crore. This should adequately insulate the banking sector to navigate through the crisis.

Impact on Corporate Sector

• Economists say that Indian corporates have undertaken many steps to utilize the opportunity in the pandemic to say relevant and keep the balance sheet in shape.
• Corporates have raised an all-time high amount of Rs 1.89 lakh crore through public equity markets.
• Improvement in credit ratio (upgrades to downgrades) across sectors were also witnessed. New investment announcements which were around Rs 10 lakh crore in last two years improved to Rs 12.78 lakh crore in first nine months of FY22 (April-December). It can report a 50 per cent growth in FY22 as compared to previous year, the report said.

Impact on GDP Growth
With limitations on trade, banking and corporate sector, SBI report expects negligible impact of the Russia-Ukraine conflict on Indian economy and added "The economy seems poised to enter a high growth (9.2 per cent in FY22 over -6.6 per cent in FY21), low inflation (4.5 per cent in FY23 vs. 5.3 per cent inFY22) phase," 

Indian Students at Ukraine: Thousands are stuck
‘Operation Ganga’ is being conducted to evacuate the thousands of stuck Indian students in Ukraine. Most of these students which include both boys and girls went to the Ukraine to pursue MBBS after paying hefty amount of fees.

Out of the 21000+ Indians who have come out of Ukraine, more than 20,000 have reached India under ‘Operation Ganga’ – the Government of India programme to evacuate the Indians stuck in Ukraine. However, the most difficult part for the stuck Indians is reach the Ukranian border as they do not find good means of conveyance from the bunkers in Ukraine where they are hiding due to the War, to the border. However, the Prime Minister of India, Shri Narendra Modi has announced that all out efforts would be made to evacuate even the last Indian in Ukraine under Operation Ganga. So far more than 80 flights have brought back thousands of Indians back home.

Hope this topic discussed in detail must have been found useful for you to know about the Russian-Ukraine Crisis and its pros and cons. MBAUniverse.com will post more relevant topics to help you getting through the GD, WAT and PI round.
 

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