Russia-Ukraine Crisis Impact on Indian Businesses & Economy

Introduction –

The Russia-Ukraine crisis has had a significant impact on the global economy, and Indian businesses have not been immune to its effects. The conflict has caused disruptions to supply chains, increased input costs, and reduced demand for exports. It has also led to increased uncertainty and volatility in the global economy, which has made it more difficult for Indian businesses to plan for the future. This article will closely explore the Russia-Ukraine crisis’s impact on Indian businesses. It will identify the key challenges that businesses are facing and discuss how they are responding to these challenges. The assignment will also assess the long-term implications of the crisis for Indian businesses and suggest how they can position themselves for success in the post-crisis era.

How the Russia-Ukraine war started –

The Russia-Ukraine crisis began in 2014, when Ukraine’s pro-Russian president, Viktor Yanukovych, was ousted from power following a series of protests. Russia responded by annexing the Crimean Peninsula from Ukraine and supporting pro-Russian separatists in the eastern Donbas region.

There are a number of factors that contributed to the start of the crisis, including:

Ukraine’s strategic location: Ukraine is located between Russia and the West, and it is seen by both sides as a strategically important country.
Ukraine’s desire to join NATO: Ukraine has expressed a desire to join NATO, a Western military alliance that Russia sees as a threat to its security.
Russia’s opposition to Ukraine’s integration with the West: Russia has opposed Ukraine’s efforts to integrate with the West, and it has taken steps to undermine Ukraine’s sovereignty and territorial integrity.

The Russia-Ukraine crisis has led to a humanitarian crisis in Ukraine, with millions of people displaced from their homes. It also had a significant impact on the global economy and security landscape.

The Russia-Ukraine crisis’s impact on Indian businesses has manifested in several ways. Some of the key challenges that businesses are facing include:

Increased input costs: The crisis has led to a sharp increase in the prices of oil, gas, and other commodities that are essential for many Indian businesses. This has put upward pressure on production costs and reduced profitability for many Indian businesses, particularly those in the manufacturing and agriculture sectors.
Disruption of supply chains: The conflict has also disrupted supply chains, making it more difficult for Indian businesses to obtain the raw materials and components they need to operate. This is likely to have a negative impact on production and profitability.
Weaker rupee: The Russian invasion of Ukraine has led to a sell-off of Indian assets and a depreciation of the rupee. This has made it more expensive for Indian businesses to import goods and services and has also reduced their competitiveness in the global market.
Increased uncertainty and volatility in the global economy: The crisis has also led to increased uncertainty and volatility in the global economy. This has made it more difficult for Indian businesses to plan for the future and make investment decisions.
Reduced demand for exports: The war has also led to a decline in demand for exports from many countries, including India. This is due to a number of factors, including the weakened global economy, the disruption of supply chains, and the imposition of sanctions on Russia and Belarus.

Indian businesses are responding to these challenges in multiple ways. Some businesses are trying to reduce their reliance on imports by sourcing more inputs domestically. Others are looking to diversify their export markets to reduce their dependence on Russia and Ukraine. Still, others are implementing cost-cutting measures to offset the impact of higher input costs.

However, the crisis also presents some opportunities for Indian businesses. For example, Indian exporters could benefit from the shift away from Russian and Ukrainian products. Indian businesses could also play a role in helping to rebuild Ukraine after the war.

Impact of Oil price hike –

India imports about 2% of its oil needs and $1 billion worth of coal from Russia per year. Indian oil companies hold multibillion-dollar investments in Russian oil fields, which is still relatively small compared to India’s oil requirements. On the other hand, Russian oil giant Rosneft has a controlling stake in the 20 million metric tons per year of India’s Nayara Energy. 

The most obvious result of the increased oil prices is inflation. Recent times have seen a steep hike in diesel and petrol prices, particularly in the past 4 weeks; and LPG prices were steadily moving up even before the conflict. Fuel and power have a 13% weighting in the wholesale price index, and fuel and light have a 6.5% weighting in the consumer price index. Also, energy and food prices have a slinging effect on  frugality as they push up costs at every stage of husbandry and artificial products.

In its latest update, the IMF has projected a slowdown of India’s economic growth to 6.6% from 7.2% in 2022, mainly due to changes in oil price assumptions.

In the medium to long term, the Russia-Ukraine crisis is likely to lead to a number of changes in the global economy, including:

Deglobalization: The war is likely to accelerate the trend of deglobalization, as countries seek to reduce their reliance on imports and international supply chains. This could make it more difficult for Indian businesses to operate in the global market.
Increased focus on self-reliance: The war is also likely to lead to an increased focus on self-reliance, as countries seek to reduce their dependence on imports of critical goods and services. This could create opportunities for Indian businesses to produce and export goods and services that are currently imported.
New trade patterns: The war is also likely to lead to new trade patterns, as countries seek to find alternative sources of imports and markets for exports. This could create opportunities for Indian businesses to expand into new markets.

The following businesses are most affected by the Russia-Ukraine crisis:

Energy: The war in Ukraine has led to a sharp increase in the prices of oil and gas. This has had a significant impact on businesses that rely on these commodities, such as airlines, shipping companies, and petrochemical companies.
Manufacturing: The war has also disrupted supply chains, making it difficult and expensive for manufacturers to obtain the raw materials and components they need. This has had a negative impact on a wide range of industries, including automotive, electronics, and machinery.
Agriculture: The crisis has also disrupted the global food supply. War has led to higher food prices and shortages of some commodities. This has had a negative impact on businesses in the food and beverage industry, as well as on consumers.
Tourism: The conflict between the two countries and the subsequent sanctions on Russia have led to a decline in tourism in both countries. This has had a negative impact on businesses in the travel and hospitality industry.
Financial services: The conflict has also had a negative impact on the financial services industry. The sanctions on Russia have made it difficult for Western banks to operate in the country. This has led to increased uncertainty and volatility in the global financial markets.

In order to position themselves for success in the post-crisis era, Indian businesses should focus on the following:

Reduce their reliance on imports: Businesses should explore ways to source more inputs domestically or from other countries. This will help to reduce their exposure to supply chain disruptions and currency fluctuations.
Diversify their export markets: Businesses should look to expand their exports to new markets. This will help to reduce their dependence on any one market and make them more resilient to economic shake-ups.
Invest in innovation: Businesses should invest in research and development to develop new products and processes. This will help them to stay competitive in the global market and meet the changing needs of their customers.
Focus on sustainability: Businesses should focus on becoming more sustainable and environmentally friendly. This has becoming increasingly important to both consumers and investors.
Embrace digital transformation: Businesses should embrace digital transformation to improve their efficiency and productivity. This will help them to contend more effectively in the global business.

The crisis has had a significant impact on the global economy, and Indian businesses have not been immune to its effects. However, by focusing on the recommendations outlined above, Indian businesses can position themselves for success in the post-crisis era.

Additional recommendations:

Strengthen their risk management capabilities: Businesses should develop robust risk management frameworks to help them identify and mitigate risks. This will be especially important in the more uncertain and volatile global environment that is likely to emerge in the aftermath of the Russia-Ukraine crisis.
Build stronger relationships with suppliers and customers: Businesses should build stronger relationships with their suppliers and customers. This will help to ensure a steady supply of inputs and a strong demand for outputs.
Internationalize their operations: Businesses should consider internationalizing their operations by establishing a presence in overseas markets. This will help them to diversify their revenue streams and reduce their reliance on the Indian market.
Collaborate with other businesses: Businesses should collaborate with other businesses to develop new products and services, share resources, and expand into new markets. The step can aid in achieving economies of scale and a reduction in costs.

The Russia-Ukraine crisis’s impact on Indian businesses has been multi-fold. However, by taking the necessary steps to prepare for the post-crisis era, Indian businesses can emerge from the crisis stronger and more resilient.

Conclusion

The Russia-Ukraine crisis has undeniably left its mark on Indian businesses, ushering in an era of unprecedented challenges and uncertainties. These impacts manifest in various ways, from heightened input costs and supply chain disruptions to a weaker rupee and increased global volatility.

Indian businesses are responding with adaptability, diversifying supply chains, exploring new export markets, and instituting cost-cutting measures.

While the long-term implications of this crisis may remain uncertain, it is clear that it will accelerate deglobalization and a shift towards self-reliance. Indian businesses must seize the opportunities presented by these changes.

To position themselves for success in the post-crisis era, Indian businesses must prioritize reducing reliance on imports, diversifying export markets, and investing in research and development. Furthermore, strengthening risk management capabilities, building robust relationships with suppliers and customers, internationalizing operations, and fostering collaboration with other businesses will be pivotal in navigating the unpredictable global landscape that is likely to emerge. By adopting these measures, Indian businesses can not only weather the current storm but also thrive in a more dynamic and uncertain global environment that follows the crisis.

While the Russia-Ukraine crisis’s impact on Indian businesses has been substantial, it also serves as a catalyst for resilience, innovation, and adaptability. Those who proactively address these challenges and embrace change will find themselves well-prepared for the post-crisis era, ready to thrive in an evolving global business environment.

References-

The Times of India –

https://timesofindia.indiatimes.com/business/india-business/one-year-of-russia-ukraine-war-how-the-conflict-impacted-indian-economy/articleshow/98214568.cms?from=mdr

Business Today-

https://www.businesstoday.in/latest/economy/story/100-days-of-russia-ukraine-crisis-heres-how-commodities-markets-economy-have-been-impacted-336094-2022-06-02

Brink News-

https://www.brinknews.com/how-the-ukraine-conflict-is-impacting-indias-economy/

Forbes India-

https://www.forbesindia.com/article/2022-yearend-special/22-for-2022-ukraine-war-and-the-india-impact/82041/1

Article by Deloitte:

https://www2.deloitte.com/in/en/pages/about-deloitte/articles/russia-ukraine-crisis-impact.html