INSUBCONTINENT EXCLUSIVE:
Deeper impact on the Indian economy likely from Russia-Ukraine conflictAlready slowing Indian economy will take a more resounding hit from
the ongoing Russia-Ukraine border conflict, with skyrocketing oil prices fueling inflation higher and as importers and exporters stay on the
sidelines in a wait and watch mode.India, which meets nearly 80% of its oil needs from imports, faces the risk of inflation hitting consumer
demand as global crude prices rose above $100 a barrel to multi-year highs.Based on the Reserve Bank of India's analysis, that jump in oil
prices of about $30 since January from around $70 back then - will add about 1.5 per cent to inflation.Supply-side bottlenecks leading to
runaway inflation have been India's bane for years
The current global environment of higher price pressures led by the coronavirus-driven supply chain disruptions will further add to the
country's woes."Although ongoing geopolitical tensions between Russia-Ukraine can hurt Asia through multiple channels, such as tighter
global financial conditions, elevated uncertainty and the risk of weaker global demand, higher commodity prices are the most important
increase the risk that consumer price inflation breaches the upper bound of the RBI's 2-6% inflation range - pushing the RBI further
behind the curve, weigh on government's fiscal finances - if excise duties are cut again, weaken consumption demand and push the basic
India's economy will grow 8.0 per cent to 8.5 per cent for the fiscal year starting in April, down from 9.2% projected for the current
year.That report, tabled by finance minister Nirmala Sitharaman in parliament ahead of the annual budget in late January, warned about risks
from global inflation and pandemic-related disruptions
but the risk is oil companies post the elections will start to take retail prices higher and hurt consumer demand.Private consumption,
accounting for nearly 55% of GDP, remains weak amid rising levels of household debt, while retail prices have soared since the coronavirus
outbreak began in early 2020.According to a Reuters poll of economists, the economy likely slowed in the final quarter of 2021, even before
most states have eased those curbs and opened up business activity, Russia's attack on Ukraine has dented hopes of a quick recovery and
will further weigh on economic growth."A sustained rise in oil and food prices would have adverse impacts on Asia's economies, manifested
through higher inflation, weaker current account and fiscal balances, and a squeeze on economic growth," said Nomura's Ms Verma."Most
Asian consumers have not yet fully recovered from the pandemic and have lower savings, so higher inflation can squeeze real disposable
incomes and weaken the incipient consumption recovery
The impact could fall disproportionately on lower income households, since food demand tends to beinelastic
For a 10% oil price rise, GDP growth could be 0.2pp weaker in India," she added.
