AS the war in Ukraine prolongs, the world economy is finding itself under increasing stress. The European Union has been the most impacted. The war has aggravated a shortage of natural gas that has already sent inflation up in most European countries. The bloc is now urging the Gulf countries to compensate for the energy shortfall as a result of the boycott of Russian oil. This calls for a sweeping and costly restructuring of its energy system. Besides, the Russian aggression has also forced the European countries to increase their military spending which, in turn, is adding to the inflationary pressure. For example, Germany plans to raise military spending to 2 percent of its GDP from 1.5 percent in 2021.
Russia and Ukraine are also the major producers of food. Ukraine is the world's biggest producer of sunflower oil, and Russia is number two, according to S&P Global Platts. Together they account for 60 percent of global production. The two countries also account for 28.9 percent of global wheat exports. This has already caused the wheat prices to trade at their 15-year highs and its impact will be felt across the world. .
Indian economy could be severely impacted, although it is too early to predict how deep this impact would be. As things stand, the war has caused higher than expected inflation, supply chain disruptions and volatility in financial markets. And India can’t be immune to this for long if the war drags on. And this is happening at a time when the world economy was gradually recovering from the debilitating fallout of the Covid-19 pandemic, a once-in-a-century event. The countries were slowly opening up and letting the economy function normally. International travel was also returning to pre-pandemic levels. India was taking taking steps toward a self-reliant economy also called Atmanirbharta. This is expected to drive economic momentum and growth. The resumption of economic activity is also important to restore the millions of jobs lost to the pandemic. More so, in India where the successive virulent waves of the pandemic have hemorrhaged the economy. In 2021, India’s GDP slipped by over 7 percent. The gaping dent in the GDP meant that lakhs of jobs were lost, a disproportionate number of them the people living at the bottom of the pyramid.
If the war drags on in Ukraine, India’s economy is likely to come under severe stress again. Skyrocketing oil prices will also wreck the European economy and that of India too which imports two-thirds of its energy needs. Therefore it is incumbent on the world to come together to resolve the crisis in Ukraine and find a solution that addresses the concerns of all the parties involved.
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