THE global economy this year has fallen from the frying pan of an abating pandemic into the fire of the Russian invasion of Ukraine. Making the situation worse is that the world’s three largest economies – the United States, Europe and China – are stalling. This has triggered worldwide inflation, fuelled by the pause in exports of food grains from Russia and Ukraine. The two countries are big food producers. Ukraine is the world’s biggest producer of sunflower oil, and Russia is number two. Together they account for 60 percent of global production. They also account for 28.9 percent of global wheat exports. This temporarily caused the wheat prices to trade at their 15-year highs. But the prices have since retreated to levels last seen before the Russian invasion of Ukraine following the recent agreement to unblock Ukraine’s Black Sea grain exports in Istanbul. The continuing war, however, is not good news for the world economy as the shrinking of the US economy through the April to June quarter shows. A slowing US economy will have far-reaching effects on the world economy.
And this is happening at a time when the global 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. The resumption of economic activity was important to restore the millions of jobs lost to pandemic.
In India, the union government had to lend support to the economy at a time when it was in freefall due to the pandemic. In the initial phase of the pandemic in 2020, Prime Minister Narendra Modi announced a stimulus package of Rs 20 lakh crore to ease the devastating fallout on the economy of the Covid-19 crisis. The package comprised a facility of Rs 3 lakh crores collateral-free automatic loans for businesses, including micro, small and medium enterprises (MSMEs). This made borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover eligible. Loans had 4-year tenure with a moratorium of 12 months on principal repayment, Besides, there was 100 percent credit guarantee cover to banks and NBFCs on principal and interest. This enabled 45 lakh MSME units to resume business activity and safeguard jobs.
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. 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. Otherwise, as prophesied by leading economists, the world is heading inexorably towards recession.
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