Stranded citizens, economic impact: India weighs its options on Ukraine

Top decisionmakers in the centre met on Thursday evening, and will also meet on Friday and Saturday as India weighs it's options on the developments in Ukraine after Russian President Vladimir Putin invaded the east European nation.

Finance Minister Nirmala Sitharaman said on the sidelines of an event that she is meeting the Prime Minister on Thursday evening. This was a formal meeting of the Cabinet Committee on Security. Though she declined to share further details, Business Standard has learnt from sources that the primary focus of these meetings will be the evacuation of Indians stranded in Ukraine, India’s stance in United Nations and other international forum, and the economic impact on India due to the resultant spike in commodity prices.

The meetings are being chaired by Prime Minister Narendra Modi, and attended by Sitharaman, External Affairs Minister S Jaishankar, Cabinet Secretary Rajiv Gauba, and senior officials from various departments.

“There are around 20,000 Indians in Ukraine, priority is getting them to safety,” a senior official said. The country declared martial law as Russian forces rolled in from the east, from Crimea in south and Belarus in north.

New agency ANI reported that Prime Minister Modi will speak with Russian President Putin on Thursday night.

Ukraine’s airspace was shut on Thursday and Air India evacuation flights had to return midway. Indians have been advised to make their way to the country’s western border. On the West, Ukraine is flanked by NATO members Poland, Hungary, and Romania. The Indian Embassy in Hungary tweeted that a team had been dispatched to border post Zohanyi to coordinate and provide assistance to facilitate exit of Indians from Ukraine.

There are expected to be detailed discussions on the economic impact. Reuters reported that oil prices jumped on Thursday, with Brent rising above $105 a barrel for the first time since 2014, after Russia's attack on Ukraine exacerbated concerns about disruptions to global energy supply.

Russia launched an all-out invasion of Ukraine by land, air and sea in the biggest attack by one state against another in Europe since World War Two. The United States and Europe have promised the toughest sanctions on Russia in response.

Analysts say that Indian investors and companies should brace for higher commodity prices over the next few weeks. Russia’s actions and the expected sanctions by US and EU can push prices of key commodities such as crude oil, ammonia, urea, potash, and phosphates higher, they said, adding that this could just the start of a rally in oil prices.

When asked if the excise duties on petrol and diesel will be cut further in order to ease the burden on retail customers, the official quoted above said the government was monitoring prices and any action that is to be taken will be taken after a detailed assessment.

The centre cut excise duties on petrol and diesel last in November. Excise duty on petrol was cut by Rs 5/litre and on diesel by Rs 10/litre. As a result of these cuts, the budgeted excise duty collection for FY23 has been reduced to Rs 3.35 trillion from FY22 revised estimate of Rs 3.94 trillion.

The 2021-22 Economic Survey assumed crude oil prices to average $70-75 a barrel for FY23. Meanwhile the Reserve Bank of India projects average retail of 4.5 percent in FY23. In her reply to the budget debate in Lok Sabha earlier this month, Sitharaman had said that the centre’s gross domestic product deflator projection for 2022-23 is 3-3.5 percent.

This means that the government’s own real GDP growth projection for the upcoming fiscal year is in the range of 7.6-8.1 percent, given that the Union Budget assumes a nominal GDP growth of 11.1 percent for FY23. A GDP deflator or implicit price deflator is a measure of inflation and is the difference between nominal GDP and real GDP as the former includes inflation and the latter doesn’t.

All these assumptions could now be under risk as oil prices breach the $100 mark.