Russian invasion of Ukraine: Implications for Indian economy

Ukraine Russia conflict and Indian economy
The Ukraine crisis will test the resilience of the Indian economy to withstand global events.

Russian invasion of Ukraine and the sanctions announced by the US and its NATO allies have ravaged stock markets across the world and sent crude prices soaring. The global economy is headed towards uncertainty once again. If the war prolongs, it may trigger high food and fuel inflation that will threaten the nascent economic recovery.

This article will look at the current Ukraine-Russia conflict purely from a risk management perspective of Indian businesses. Key risks from the conflict are supply chain disruptions, mental health issues of employees who have children studying in Ukraine, disruption of export demand, risks of air travel, heightened demand for outsourcing from India, and the risk of US sanctions as India has ongoing contracts with Russia.

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Supply chain disruption: Mitigation actions possible

The mitigation actions will primarily hover around acceleration of the thrust on renewables. India Inc. must push on ethanol as an additive, agro waste processing at scale, solar panels on all rooftops, wind energy at scale, ramping up coal washing, fly ash watering and drying at use point, carbon capture, carbon conversion to energy and sequestration. Offsets in terms of tree planting will also need to be taken up at a massive scale to quickly transition to completely green fuels and a minimal dependence on coal and oil for energy needs.

Also, the PLI scheme and temporary protection schemes will need to be implemented on an urgent basis. All costs of manufacturing will have to be driven down by deploying exponential technologies leading to 4.0 status for all manufacturing.

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Mental health issues of Indian students, parents

The war has left around 16,000 Indians stranded in Ukraine. Most of these are students from Gujarat and Kerala. The government has kicked off action to move Indian students to the safety of neighbouring countries and evacuate them.

India must share the long distance, digital learning insights acquired during Covid-19 with all universities where Indian students are studying. There is a need to set up support groups to provide psychological guidance and trauma reduction to students and parents on a digital platform.

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Disruption of trade with Russia, Ukraine

India-Russia trade grew from $8.1 billion in 2020-21 to $9.4 billion so far in this financial year. Its bilateral trade with Ukraine was $2.5 billion in 2020-21 while it is $2.3 billion so far in this fiscal.

Indian businesses that have trade ties with Ukraine must search for and find alternative destinations with the active support of Exim Bank. They need to redirect ‘in process’ and ‘in transit’ supplies to alternative markets.

The businesses should evolve strategies to engage in rapid personalisation for new customers using digital processes. There is a need to create centres of rapid design change and automated revamp of manufacturing to meet the new and changed demand forces.

India needs to issue travel advisories to enable a replanning of trips in an orderly manner with constant updates as the situation emerges. It could use rerouting as well as a hubs-and-spokes strategy to safely bring passengers home. It should consider a no-cost change of booking policy.

Outsourcing demand explosion

India could see an exponential growth in demand for outsourcing as the Russian invasion could threaten Ukraine’s position as a global outsourcing destination. The country could grab the opportunity and should create upward and downward scaling capabilities in all outsourcing programmes.

The country could use this opportunity to revamp supply of services capability using updated no code-low code strategies. It should rapidly deploy machine learning and artificial intelligence to alter customer satisfaction parameters. Lowest latency and fastest response to SLA deviations may be implemented on a rapid basis. Improving customer experience all-round must become a priority.

The crisis saw crude oil prices crossing $100 a barrel for first time since Narendra Modi became Prime Minister in 2014. It also saw stock indices crashing to one of their steepest single-day slides. Coming on the heels of the pandemic, the Ukraine crisis will test the resilience of the Indian economy to withstand global crises.

Shailesh Haribhakti

Shailesh Haribhakti is a Chartered and Cost Accountant, an internal auditor and a certified financial planner. He is a board chairman, audit committee chair and independent director at some of the country's most preeminent organisations. He is a thought leader on the Indian economy and public policy.