THE ongoing war in Ukraine is hammering the global economy. The president of the World Bank David Malpass. has termed the war as an “economic catastrophe.” He said the war has come “at a bad time for the world because inflation was already rising.” Malpass rightly pointed out that the economic impact of the war stretches beyond Ukraine’s borders, and the rise in global energy prices in particular “hit the poor the most, as does inflation”. The reason for this, according to Malpass, is that both Russia and Ukraine are big food producers. 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 caused the wheat prices to trade at their 15-year highs.
Oil has already breached $130 a barrel. And if the west cuts off Russian crude oil as is being mulled by the Biden administration which is in talks with European leaders, this will push the oil prices further higher. Russia is the biggest source of oil and gas. This, in turn will have a spillover effect across all the commodities. Gold prices, meanwhile, hit $2,000 an ounce. Financial markets across the world have plunged in recent days causing the cash loss of thousands of crores to the investors..
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. 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, 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 per cent 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.
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