Ukraine crisis: Indian exporters delay orders, worry over payment dues

Amid the global tension over Russia’s threat to invade Ukraine, Indian exporters are treading cautiously while executing existing orders.They are also delaying the execution of fresh export orders with Russia, fearing delay in payments.

The looming uncertainty will affect the global economy, which is recovering from the pandemic, said industry experts.

“Exporters are already delaying the execution of fresh orders (in case the situation worsens) and the uncertainty will continue. However, if there is a delivery of a contract, it is being executed,” said Ajai Sahai, director-general (D-G) and chief executive officer (CEO), Federation of Indian Export Organisations (FIEO).

Russia is India’s 25th largest trading partner as of 2021-22, with total trade at $9.4 billion during the first three quarters of the current fiscal. 

Its share of exports compared to India’s total exports was less than one per cent. Imports from Russia have a share of 1.27 per cent. Trade balance has been in favour of Russia, at least in the last one decade.

According to a ministry of external affairs note, Russia’s external trade has witnessed significant reduction. This is owing to its focus on import substitution in the aftermath of the general economic slowdown and its dispute with the West over Ukraine since 2014. 

India has also been affected by the contraction in Russia’s exports and imports. However, Prime Minister Narendra Modi and President Vladimir Putin have made trade and economic relations priority areas. Both sides have set ambitious targets. 

Electrical machinery and equipment, nuclear reactors, pharmaceutical products, iron and steel and organic and inorganic chemicals are the top items exported to Russia. In case of imports, key items include mineral oil, vegetable fat, fertilisers and rubber.

Banking system impact

While the US and allies are set to impose hard economic sanctions on Russia, experts said that the impact on India’s banking system would depend on the sanctions imposed.

“Importers and exporters may have to rethink their payment strategy and mode of payment. This may require a third-party bank to be roped in if sanctions on the SWIFT (system of international payments) financial system are imposed,” Abheek Barua, chief economist at HDFC Bank, said.

Sanctions may lead to a considerable amount of disruption. India may have to talk to the US and other countries if these sanctions can be bypassed in any way. However, limited trade may be allowed and some banks could be permitted to undertake wire transactions on behalf of Russia, Barua said.

Although India does not buy oil from Russia directly, it could impact the overall supply of the commodity. 

Liquefied natural gas (LNG) imports from Russia may get impacted. Exports of Indian products such as tea, pharmaceutical products and electronic items may also get impacted.