Due to globalization, any war has an impact on every part of the world. Whether that war is being fought in the Gulf countries or in faraway Africa. But the war between Russia and Ukraine is different. It is a clash between two superpowers. It has the Russian army on one side, while on the other side the Ukrainian army supported indirectly by the US and NATO. Two ‘blocks’ have been formed, whose escalation can be ineffective on India as well.
The war will immediately affect global trade, capital flows, financial markets and technology access. Russia has of course attacked, but sanctions have also come into force on it. An attempt is made to stop trade with the country on which the embargo is imposed. At present, Russia is a major supplier of gas and oil. The business of these products may not have been banned yet, but it is possible that soon their trade will also be banned. Obviously, their prices may increase. On the other hand, Ukraine is one of the major exporters of wheat and edible oils (especially sunflower oil). India imports sunflower oil worth about $1.5 billion every year from there. In such a situation, due to the impact of import of these items, our food products will be affected here. That is, this war could deeply affect global trade in energy, metals and food products.
Similarly, sanctions on Russia would impede the flow of its capital. This will affect the financial markets. When there is uncertainty in the market, selling starts. Foreign investors start withdrawing their capital. This reduces the inflow of Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). In the event of war, all countries advise their investors to invest in their respective countries, so that their economy remains strong. It could happen this time also. Technology is also not untouched by this. As the need for modern technology increases in warfare, so does its availability for the rest of the field. Yes, the industry related to military equipment can definitely benefit, because their purchase and sale and production can increase.
It all depends on how long the war lasts. However, the speculation is that this war will not last long. Russia would hardly like to repeat the 1979-89 mistake of Afghanistan. Therefore, there is also news of decorating the negotiating table between the two countries. But recently, despite the end of the war, the Cold War is not going to end. It won’t be like the 1950s. At that time there was an ideological battle between the Soviet Union (Left) and the West (Capitalism). Now even countries like Russia and China have adopted the capitalist system. So this is not an ideological but a war of supremacy. Due to this the world can be divided into two parts, in which the tradition of doing business among themselves can gain momentum.
This will obviously lead to mutual capital flows and the global supply chain could be affected, due to which we could face inflation. This means that this war could increase recession and inflation around the world. Global business will be affected due to sanctions on Russian companies. However, Western countries are trying to increase their production of petrochemical products and OPEC countries can be requested to do the same. Nevertheless, domestic prices of petro products will rise, which will lead to an increase in the prices of other items as well.
The rise in inflation leads to a decrease in demand, which affects the growth rate and investment. Since there is not much capital in the market right now, inflation can have a greater impact than before. Then, our balance of payments may deteriorate due to increased imports and reduced exports. In times of uncertainty, the demand for gold also increases, which can increase its imports. This will also affect the balance of payments. Due to this the rupee will weaken and its price may increase in the local market. That is, inflation is going to come in front of us through two-three ways.
This war may also have some other effect on the global economy. As such, it can spoil the budget of countries around the world. All countries can spend more on their military. This will reduce the real growth comparatively and also reduce the revenue. Inflation does increase tax collection, but it is hardly in the real sense. These increase the revenue deficit, after which the governments start pulling their hands from the social sectors. This naturally affects the poor. India will hardly be an exception to this. It is possible that even now the governments may start withdrawing from the concept of globalization, which will especially harm the developing countries.
The issue of Indian students going abroad is also hot here. Our students go out because the country lacks the necessary educational infrastructure. Medical seats are very less here and private colleges charge exorbitant fees. Again, Ukraine has a medical college for 1.7 lakh students, while it has 27 lakh students. If these children return after completing their studies, then Indian economy and society can benefit greatly, but children usually do not return. Therefore, there is a dire need for structural reforms in the field of education in India. If children start getting education in the country itself, then not only will the productivity of the working class in India increase, but enterprise will also grow. This type of experiment has been done by Southeast Asian countries. Right now the only complaint from the industry is that 90 per cent of the new kids lack proper training. This grievance of the industry can also be addressed by having more number of colleges, providing quality academic environment and training to the students. Obviously, this war is affecting the Indian society and economy in many ways.
(These are the author’s own views)