The 2022 Economic Survey, announced on January 31 last year, had projected India’s GDP growth at 8-8.5 percent for FY23 which was later revised to 7 percent in the first Advance Estimates as the Russia-Ukraine war was far from over, noted a Business Standard report. The war had broke out 24 days after the presentation of the Survey.
However, India wasn’t directly impacted by the war, said the report, adding that its trade with Russia before the conflict was largely limited to the defense sector while its trade with Ukraine wasn’t significant either.
Meanwhile, following the conflict, bilateral trade between India and Russia, in fact, surged as New Delhi sourced discounted crude oil and other items from Moscow, noted the report in the analysis.
The indirect impact of the war on the Indian economy, however, was palpable as it partly led to a recession or a severe slowdown in advanced economies, besides jacking up commodity prices in the initial phases, explained BS.
Global prices of the Indian basket of crude oil also remained over $100 a barrel until July and have since receded, it noted. This holds true of other commodities too. For the initial months, global prices, particularly of commodities supplied by Ukraine and Russia such as wheat, sunflower oil and fertilisers, skyrocketed, forcing India as well as peers to take fiscal and monetary measures, mentioned BS.
External conditions also deteriorated due to the war on many fronts. Demand in advanced economies slumped and the initial trade deficit was high due to the rise in imports even as commodity prices flared up, noted the report. The current account deficit (CAD) further rose to 2.8 percent of GDP in April-June (FY23), against 1.5 percent in January-March (FY22), it informed.
There was also pressure on the rupee vis-à-vis the dollar as central banks in advanced economies raised interest rates to fight elevated inflation, BS pointed out. The rupee, which stood at 74.45 against the dollar in January 2022, weakened to 76.21 in March after the start of the war and breached 80 in September; it stayed over 80 in January and February of 2023. This resulted in a flight of portfolio investments, it explained.
Various entities also had to revise their growth estimates for the world economy and, in turn, India’s economy, said BS. For instance, the IMF believed India would grow by 9 percent in 2022-23 in its pre-war projections; it now expects 6.8 percent growth.
War, along with other factors, slowed down the world economy and hence the Indian economy too, noted the report.