Mumbai: The global economic fallout of the war is expected to negatively impact India’s economy through a number of channels, which differ from those impacting the Indian economy during Covid-19, Gerry Rice, International Monetary Fund’s Director of the Communications Department, told reporters here.
Rice said the sharp rise in global oil prices represents an important trade shock with macro-economic implications.
It will lead to higher inflation and current account deficit, he said as Russia launched a special military operation against Ukraine on February 24.
But the impact on the current account could potentially be partially offset by favourable movements in prices of commodities that India exports, for example, wheat, he said. Rice said that the negative impact of the war in Ukraine on the US, the EU and Chinese economies could dampen external demand for India’s exports, while supply chain disruptions could negatively impact India’s import volumes and prices.
There’s also the question of tightening financial conditions and heightened uncertainty, which can affect domestic demand and the fiscal position through higher borrowing costs and reduced confidence, he said.
According to the IMF, there’s a great deal of uncertainty around the outlook for India. In summary, I think there’s a great deal of uncertainty around the outlook for India. That uncertainty is clearly I would describe it as elevated and will depend again on the magnitude and persistence of the shock, and whether other macroeconomic risks materialise. And of course, on the policies of the government in response to this difficult situation, Rice said.
On the other hand, the IMF said the immediate impact of the war on China will be less. The immediate impact of the conflict on China is likely to be relatively small. The higher oil price could affect domestic consumption and investment going forward, but price caps will limit the impact, Rice added.
According to the IMF official, overall, Chinese exports to Russia are a relatively small share of exports overall.
But, China would be affected if trade partner growth were to slow significantly, serious supply-side disruptions were to emerge, or global financial markets were more severely impacted,” Rice said.