Russia-Ukraine crisis to widen India's current account deficit

AgenciesUpdated: Tuesday, March 01, 2022, 03:57 PM IST
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The crisis is expected to increase prices of mineral fuels and oils, gems and jewellery, edible oils and fertilisers./ Representative image | Photo credit: Pixabay

Geopolitical risks emanating from the Russia-Ukraine conflict is expected to push India's import bill higher.

Consequently, the trend will widen the country's Current Account Deficit.

The crisis is expected to increase prices of mineral fuels and oils, gems and jewellery, edible oils and fertilisers.

At present, India has a significant import dependence for these items.

"As a result, merchandise imports may cross $600 billion in FY22," said India Ratings and Research (Ind-Ra).

"The immediate impact of the conflict on the Indian economy will be felt through inflation, an increase in current account deficit and rupee depreciation."

As per an Ind-Ra's analysis, a $5 per barrel (bbl) increase in crude oil prices will translate into an $6.6 billion increase in trade or current account deficit.

"The ramifications of the Russia-Ukraine conflict on the Indian economy will be felt via higher global commodity prices as India is a net commodity importer."

Besides, high crude oil price is a cause of concern for India as it may add Rs 8-to-Rs 10 in petrol and diesel's selling prices, if the OMCs decide to revise the current prices.

Currently, India imports 85 per cent of its crude oil needs.

Furthermore, the cascading effect of higher fuel cost will trigger a general inflationary trend.

Already, India's main inflation gauge -- Consumer Price Index (CPI) -- which denotes retail inflation, has crossed the target range of the Reserve Bank of India in January.

(With IANS inputs)

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