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Russia- Ukraine Conflict affect on India’s GDP growth

According to a UN report released, India’s projected economic growth for 2022 has been downgraded by more than 2% to 4.6 percent, a decrease attributed to the ongoing war in Ukraine. New Delhi is expected to face restrictions on energy access and prices, as well as trade sanctions, food inflation, tightening policies, and financial instability.

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Russia-Ukraine war effect on the worldwide economy:

  • Due to disruptions from the Ukraine crisis and changes in macroeconomic policies that put developing nations in particular at risk, the UN Conference on Trade and Development (UNCTAD) has lowered its global economic growth prediction for 2022 to 2.6 percent from 3.6 percent.
  • While Russia is anticipated to enter a serious recession this year, major economic slowdowns are expected in regions of Western Europe and Central Asia, according to the analysis.
  • While some other economies in South and Western Asia may profit from rapid increase in energy demand and pricing, they will be plagued by difficulties in primary commodity markets, particularly food inflation, and will be further harmed by underlying financial instabilities.
  • Trade with China and other partners will continue, but they will not be able to compensate for the large number of imported commodities that the Russian Federation is currently unable to obtain.
  • Even if the violence in Ukraine ends, Russia will face a severe recession if sanctions remain in place until 2022.
  • Quantitative easing, or the active purchase of bonds on the open market, was also used by a number of developing country central banks.
  • A small number of central banks in emerging countries bought private sector bonds, but public bond purchases were more common: the central banks of India, Thailand, Colombia, and South Africa, among others, bought public bonds.
  • Many developing countries have struggled to regain economic traction since the Covid-19 recession, and the war is now posing significant challenges. Whether or not this causes unrest, a deep sense of social dread is already spreading.
  • The war has increased the upward pressure on worldwide energy and primary commodity prices, stretching household budgets and increasing production costs, while trade disruptions and sanctions are expected to chill long-term investment.
  • The geopolitical crisis has shattered confidence in the United States, just as pandemic-related disruptions appeared to be subsiding.

Effect on Indian Economy:

  • In 2022, India was expected to grow at 6.7 percent, but UNCTAD has cut that forecast to 4.6 percent.
  • India will be constrained on multiple fronts, including energy access and prices, primary commodity constraints, trade sanctions’ repercussions, food inflation, tighter policies, and financial instability.
  • Today, a country’s currency’s position in the global monetary system is ambiguous.
  • The currencies of Brazil, Russia, India, and China account for less than 3.5 percent of the USD 6.6 trillion daily turnover in the currency markets, a ratio that is less than one-tenth of the 44 percent held by the US dollar.

Effect of Russia- Ukraine War on Industrial Nation:

  • According to UNCTAD, the prolonged conflict in Ukraine is likely to deepen the monetary tightening trend in industrialised nations, following similar actions that began in late 2021 in numerous developing countries due to inflationary pressures, with future budget cuts also expected.
  • UNCTAD is concerned that a combination of weakening global demand, insufficient international policy coordination, and high debt levels as a result of the pandemic will cause financial shockwaves, pushing some developing countries into a downward spiral of insolvency, recession, and stalled development.

Key Points:

  • According to the UNCTAD research, “the added pressure of price increases is intensifying calls for a policy response in advanced countries, notably on the budgetary front, threatening a faster than expected slowdown in growth.”
  • Increasing food and fuel prices will have an immediate impact on the poorest people in developing countries, causing hunger and suffering for families that spend the majority of their money on these items.

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