Latest News | Ukraine Crisis: Inflation from Commodities Will Be Initial Impact for India, Says Report

Mumbai, Feb 28 (PTI) The initial or short term impact of Russia's invasion of Ukraine for India will be experienced through inflationary pressures as the country is dependent on imported oil, a report said on Monday.

Some sectors like oil and gas and both ferrous and non-ferrous metals can gain through this trend, while the ones which depend on oil as a key input, like chemicals, fertilisers, gas utilities, refining and marketing, will have a negative impact, domestic ratings agency Icra said.

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The agency added that the biggest factor to watch out for will be if the conflict triggered by President Vladmir Putin pressing forces into Ukraine lasts longer and escalates to other parts of Europe.

It noted that Russia is a major exporter of fuel, chemicals and metals, and most of the G7 nations have announced sanctions on Moscow, trying to limit its trade, which excludes energy.

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"The macro implications of the geopolitical crisis will stem primarily from the surge in crude oil prices, as Russia does not have major share in India's trade basket," its chief economist Aditi Nayar said.

She added that the rupee has been relatively range-bound in 2022 so far, despite elevated crude oil prices, but pessimistic global sentiments along with a stronger US dollar could weaken the domestic currency going forward.

The rupee will not depreciate beyond Rs 78 to the USD on positives like large forex reserves of over USD 630 billion and the likelihood of the current account deficit coming under 3 per cent despite the surge in crude prices to over USD 100 per barrel, she added.

The agency said Russia accounts for only 1 per cent of the trade, which is mostly related to commodities.

Commodity prices are trending at all-time highs, primarily driven by metals and natural gas. Moreover, oil prices surging close to USD 100 per barrel has provided further impetus to commodity led inflationary pressures, it noted.

Select sectors could gain like upstream oil and gas and ferrous and non-ferrous metals, it said, adding domestic natural gas prices too are expected to increase owing to rise in prices at international hubs. These, along with elevated crude oil prices will positively impact the profitability of upstream companies.

There could be potential negative implications for some of the sectors where oil/gas is a primary input such as chemicals, gas utilities, refining and marketing, and fertilisers, it warned.

The rise in oil prices may be passed on to the end-consumer which could impact the demand growth of petroleum products adversely, it added.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)