The tremors from Russia’s invasion of Ukraine, over 5,000 kilometres away, are being felt at home, with industries from metals, oil and gas to cars and agricultural commodities feeling the jitters. More importantly, it may have got the Reserve Bank of India (RBI) worried, with the central bank closely watching for signs of inflation inching northwards, experts said. While the direct economic impact on India may be marginal, the indirect effects on various sectors will be significant. ET spoke to company executives and analysts to gauge the effect of the conflict on key areas.

Financial sector

Higher crude oil prices and a weaker currency will make it difficult for the RBI to keep interest rates low and support growth. The rupee has already lost 1.33% of its value in 2022 and is among the worst-performing currencies in emerging markets.

Knock-on Effects of Higher Crude Prices

Higher crude prices will also have knock-on effects on other sectors, stoking inflation in India and force the RBI, which has been sticking to an accommodative stance, to hike rates faster than it would have liked to.

• Increase in crude, metal prices raise fears of higher inflation
• Pump prices of fuel expected to go up post state elections
• Cost of transport may rise, increasing input cost for most industries
• Thermal coal prices at record high
• Cooking oil prices up 10% in last fortnight
• Dividend repatriation from investments in Russian oilfields will get harder

Oil & Gas

As oil prices soar, state-run oil marketing companies are incurring losses as they are unable to raise the prices of petrol, diesel and cooking gas amid key state polls. They are expected to sharply raise prices once elections conclude next week. Natural gas prices too are surging, reducing imports from the spot market and cutting down business for gas marketers. For ONGC and other Indian state firms invested in Russian oilfields, repatriating dividends to India will be harder as Russia gets locked out of SWIFT global banking network. Prospects of investing in the massive Vostok project in Russia are also diminishing as Indian firms will not be able to raise capital for the project with sanctions on Russia.

Cooking Oil

Not just the oil in your car but that in your food will get pricier too, at a time when the country has been facing historically high inflation in cooking oil prices for close to two years. Sunflower oil accounts for about 10-12% of India’s total cooking oil consumption. Of this, 70% is sourced from Russia, 20% from Ukraine and 10% from Argentina. Cooking oil prices have increased by about 10% during the past fortnight.

Prices of soya bean, used for cooking oil and animal feed, had touched record levels due to international shortages, forcing the government, for the first time, to allow import of genetically modified soya meal, ban trading of soya bean on the NCDEX and impose stock limits on trading.

Food

High feed prices have already resulted in an increase in the prices of animal protein such as milk and milk products, chicken and seafood. With exports of wheat from Russia and Ukraine coming to a halt, importing countries have turned towards India. Domestic wheat prices have increased by 15% from ₹21 to ₹24 per kg since the outbreak of the war. Countries around the Black Sea are also exporters of coriander seed. Closure of shipping ports in the region has increased demand for Indian coriander seeds, which are in short supply in India.

Logistics

As pump prices of fuel increase, expect cost of logistics and transport to go up, from Uber fares to autorickshaw charges. Moreover, the resultant higher input cost for transport companies means they will hike prices too, impacting industries across the board, from dairy and FMCG to construction and heavy engineering.

Automobiles

India’s auto industry fears that Russia’s invasion can worsen its supply chain challenges. Russia is a leading producer of palladium, aluminium and crude and crude derivatives. Ukraine is among the major producers of neon gas used in chip manufacturing. Input cost inflation will mean that there will be further pressure on the shrinking margins of automakers and ancillary companies. As companies inevitably pass on the costs to consumers, demand for new vehicles is likely to get impacted, if likely higher fuel costs have not already scared away potential buyers.

Coal

Thermal coal prices have touched record highs over last few days and are expected to rise further. Russia contributes 110 million tonnes or 11% to the global market. Thermal coal is used for producing electricity as well as by several manufacturing industries. In anticipation of high electricity demand this summer, the Union power ministry has asked state-run NTPC and Damodar Valley Corp. to import 10% of their coal requirement, while private power companies have been advised to import 4% of their needs.

Metals

India’s secondary and scrap-based steelmakers are feeling the heat amid a shortage of supplies of scrap from Russia due to the conflict. “Post the second wave of Covid-19, there was short supply of scrap and much smaller and medium steel businesses in India had to shut down. The Russia-Ukraine crisis is a double whammy,” said a scrap-based steelmaker from Gujarat who didn’t want to be identified. Prices of scrap have gone up by 30-40% since start of the crisis, and will rise further, said the person cited above.

Contributed by Nehal Chaliawala, Sanjeev Chaudhary, Sarita Singh, Jayashree Bhosale, Joel Rebello and Bhavya Dilipkumar