Why Is India Resilient To Ukraine War, Amidst Downswing Of Global Growth? – Analysis
While the world succumbed to Ukraine war, plunging to a slow pace of economic growth, India sustained its high growth trajectory, proving resilient to the global downturn. According to the IMF ‘s World Economic Outlook, global growth was forecasted to slow down to 3.2 percent in 2022, from 6 percent in 2021 and slip further to 1.3 percent in 2023. The factors which engulfed the growth were inflation and energy crisis, the Outlook said.
Eventually, global inflation fell prey to the Ukraine war. It rose to 8.8 percent in 2022, from 4.7 percent in 2021. Energy prices rose up to 20 percent within five months of the outbreak of war. Brent crude price skyrocketed to US$ 122.7 /per barrel in June 2022, from US$ 97.13 /per barrel in February 2022. The peak growth in prices sustained till August 2022, before it declined gradually to US$ 80.92 /per barrel.
Among the regions, Europe was most vulnerable to the war. The IMF Outlook said that the war triggered a massive shock of food inflation and energy crisis to EU, owing to its overdependence on Russia. It is the biggest supplier of wheat and oil to the region. Over the year during the invasion, supply disruption led the energy crisis and food inflation, shadowing the EU growth.
The Ukraine war also dented the growth of developing and emerging nations, like ASEAN. Even though Russia and Ukraine do not have strong presence in these nations, the region faced a spill-over impact due to sanctions by USA and EU.
Against these backdrops, India was standalone country, which vied for a big challenge to the war. It led a smooth and uninterrupted growth, defying direct or spill-over impact of the war.
According to Advance Estimate of National Income, India’s GDP growth in 2022-23 was estimated at 7.0 percent, as compared to 9 percent in 2021-22. Given the higher base in the preceding year, 7.0 percent growth in 2022-23 could be reckoned a spurring growth, amidst the global downturn due to Ukraine war.
India’s growth is further lauded, when it is compared with Asia’s emerging nations , including China. In 2022, excepting Vietnam, India’s growth outpaced ASEAN-5 and China. In 2023, it is expected to top the global growth, according to IMF Outlook. These demonstrate that India will be the most attractive nation to drive the global growth, amidst the protracted Ukraine war.
What are the parameters which led India stronger to downplay the massive shock to global economy due to Ukraine war? The answer lies with India’s food self-sufficiency and articulated oil economy management. It is an oil deficient nation. Over 90 percent of oil requirement is met by imports.
From a food shortage nation in mid-sixties, which led a nationwide famine in 1967, India has become a food surplus country. It is the world’s largest exporter of rice.
At present, India is the largest producer of food grains in the world. It is the largest producer of rice, wheat, sugarcane, groundnut, pulses and second largest producer of fruits and vegetables.
The growth trajectory of foodgrains production helped India to rein in global food crisis, which erupted due to Ukraine war. Eventually, while the spurt in global food prices triggered a major headwind to the import based food nations, India proved resilience to the war driven food inflation.
With the onset of Russian invasion of Ukraine in February 2022, global food prices rose significantly in larger parts of EU and ASEAN areas. According to FAO, global food prices shoot up to 40 percent in March 2022. However, the food price hike slipped downward gradually to 18 percent January 2023 , given the thrust on alternative sources by EU for food imports.
Against this global landscape of food price conundrum, food prices in India increased merely by 6.7 percent in 2022-23. This is a normal increase in food prices.
Russia, including Ukraine, account for nearly one-third of global wheat production. They are also major sources for corn in the world. Both are reckoned as the “bread basket of Europe”.
Hedge from oil crisis
The greatest comfort for India was the hedge from oil crisis. With timely pro-active approach, such as diversifying oil imports from Russia, India proved a successful attempt to dilute another major oil shock to the economy.
From merely 2 percent in the pre-war period, oil import from Russia surged to nearly 20 percent in 2022-23 (April-January). In the pre-war period, OPEC was the major source for crude oil import. Nearly, over 70 percent of oil was import from OPEC.
Russian oil was not only substantiating the oil supply in the oil basket, it also provided a major saving in foreign exchange. Russian crude was the cheapest among all major supplies during the war period. During April–January 2022-23, the average price of Russian crude oil imported was US$87.7 per barrel, as compared to US$101.5 per barrel from Saudi Arabia, US$95.4 per barrel from Kuwait and US$92.6 per barrel from Iraq.
Given the OPEC decision to cut production of oil and subsequent sanctions on Russia from December 5, 2022 by USA and EU, another major oil shock was imminent. India could successfully outsmart the oil crisis shifting to oil imports from Russia.
To the surprise, for the time India continued to be resilient to oil driven global inflation. It gyrated within the comfort zone of inflation. CPI (Consumer Price Index) hovers around 6.6 percent increase in 2022-23, which was much lower than global inflation of 8.8 percent.
In summing up, India could withstand the global shock of Ukraine war by virtue of its strong economic parameters and political sovereignty in the global power game, reposing confidence in neutrality in the war.