The Russia-Ukraine war has put India in a precarious situation. India is treading a fine line and preferred to abstain during the voting at UNGA.

The Ukraine-Russia war is perhaps the most bitter one since 1945. The world economy is yet to recover from the blow of the deadly pandemic. Oil prices have crossed $120 a barrel. A challenging task for the central banks worldwide will be to strike a balance between managing price rise and economic growth. Prices of oil, natural gas, and staples are rising. Although Russia contributes only 1.7 per cent of the world's total output, it exports energy, which is crucial for many countries.

Many European countries depend upon Russia for their energy needs to a large extent, which is supplied through a network of intricately laid pipelines, running through Ukraine. If the conflict and sanctions continue, energy supplies to Europe at peak wintertime may be blocked by Russia as had happened earlier in 2006-07 and 2009.

Sanctions by the West will cause collateral damage for both the Russian and western economies leading to high inflation. Russia closed its air space to 36 countries. Also, many shipping planes will now need to take a different route, adding to fuel costs.

Russia and Ukraine both are large exporters of wheat, corn, and minerals such as nickel, palladium, and aluminum, which are essential for manufacturing industries, including mobiles and automobiles. A fall in the supply of these items from Russia and Ukraine will lead to further price pressure.

Impact on India

The crisis is likely to have a short- and long-term economic impact on India. There will be an impact on international relations as well. India's dependence on Russian crude oil, natural gas, and edible oil will result in high inflation and a widening current account deficit. The import bill is likely to cross $600 billion in FY 2022. High fuel prices would translate to increased households spending on fuel and less on other goods and services.

A consumption-driven economy like India, which is just recovering from the pandemic, will be badly hit by the hike in fuel price. India has a trade deficit with Russia. Oil imports from Russia are 2.8 per cent of our total imports. India also imports 2.5 million tonnes of sunflower oil, of which 70 per cent is from Ukraine. India's imports took a hit because of the ongoing crisis.

India has to maintain the balance as it cannot afford to spoil its relations with either of the two countries. It has to understand the new economic order that may emerge from China indirectly supporting Russia by not following the West and going for economic sanctions.

China also abstained from voting at UNGA. The conflict might well allow China to act more aggressively against India. China did something similar in 1962 when it attacked India. The Soviet Union and the US were preoccupied with the Cuban crisis at that time.

Russia and China are close allies on many strategic levels. Their deep-seated alignment was recently reinforced at the Beijing Winter Olympics, which many Western countries boycotted. The joint statement issued by both sides reasserted China's interests in many of its neighboring regions and their strategic cooperation at many levels in organisations like BRICS, SCO (Shanghai Cooperation Organization), East Asia Summit, and the UN.

The current standoff may not continue for long but may lead to a shift of global order from a unipolar world order to a multipolar one. Russia already has close ties with six central Asian countries under the ambit of CSTO (Collective Security Treaty Organization). Due to the pandemic, economic sanctions, and slow growth of its economy, Russia may not have the strength today to undertake any independent military operations in any country for long.

China’s role

Still, this incident signifies the more significant role of Russia in the Asian region and the world forums in general. China's role will also become critical as it may have a mediatory role to play in the ongoing crisis. Post pandemic, many businesses and global supply chains had to restrict or close their operations in China due to travel and other restrictions, hampering its economy. So any such role for China will help it gain firmer ground in the Asian region.

The end of the cold war did not end the apprehensions of the western countries and the US against Russia, and hence NATO, where Ukraine had been closely allying, raising concerns from Russia. While sanctions against Russia may not continue for long due to its energy resources, they may lead to segregation and more cooperation between European and Asian countries in various economic and security blocs based upon their strategic interests and past alliances. Multilateral trade and security agreements will likely go hand in hand in the future.

India may be persuaded to be a part and play a more significant role in these groupings in order to secure any kind of economic interests in those countries. China's expansionist policies in its neighbouring countries and international waters and involvement in many other countries' strategic infrastructure development through its ambitious BRI (Belt and Road Initiative) initiative, have raised concerns of containment by India and many other East Asian economies.

Hence, India may have the opportunity to play a greater role in the Asian region but will also present a challenging position due to its legitimate interests with China and Russia and the relationship of these two countries with India's hostile neighbours.

Singh Verma is a Research Scholar (Economics)-IIT Indore, and Dutta Gupta is Associate Professor-Economics, BML Munjal University