Russia- Ukraine war Effects on Indian Export and Import

The ongoing war between Russia and Ukraine has its ripples on Indian Export and Import. The war has caused the Indian rupee to depreciate further against the US dollar. Exporters will benefit but the import bill will increase.

Russian President Vladimir Putin announced a special military action in eastern Ukraine. The Indian market crashed by 4.7% that day. At the inter-bank foreign exchange market, the rupee opened at 75.02 against the US dollar but later dropped to a low of 75.75. This was mainly due to the outflow of funds from emerging markets due to geopolitical uncertainties.

The foreign reserves have fallen over 2 to 3 percent from its peak. Falling value of rupee is a boon for export companies. As on December 2021, India’s exports to Russia stood at Rs. 27.114 billion as per India Export Data. This was the highest export trade amount in 30 years.

As the news of the war spread, the Indian rupee continued to fall further due to panic selling by investors. Depreciation of the rupee caused by the ongoing conflict between Ukraine and Russia would mean a partial relief for Indian exporters who have negotiated contracts in dollars.

A depreciated rupee will help the exporters in the short term as they can earn more money for the goods they have exported. However, this holds true only for those Indian exporters who do not import any raw materials for production.

For e.g. car manufacturing companies like Maruti and Mahindra import some electronic parts from other countries like computer chips from Taiwan, manufacture the car in India and then export it to other countries. And software exporting companies like TCS, Infosys do not require importing anything for rendering their services. So while some exporters may gain from the depreciating of the rupee others stand to lose.

Business entities prefer a stable currency rate. Exchange rate fluctuations weight one against the other and the domestic market may not have the appetite to ingest such change. In short term a depreciated rupee might bring benefits to exporters but a stable currency exchange rate is far more preferable option to ensure business stability.

Indian importers will now have to pay more money for the same amount o goods and services. With Indian rupee depreciating they will have to pay more for goods they import from other countries. This will slightly have negative impact.  As per India Import Data, Brent crude spot price has breached $100 a barrel on February 28 and with Indian rupee depreciating India will have to pay more for these.

Due to depreciated rupee the capital goods importers will have to pay more in rupee terms for the same quantity of goods.

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