The perfect storm: On Russia’s Ukraine gambit

News: Russia’s invasion of Ukraine and possible sanctions by the US will impact India adversely.

What is the impact on the Indian economy?

This could deter Indian interests, be it in terms of trade financing, investment flows, and even banking transfers.

Visible impacts

Oil prices surged to an eight-year high of around $105 a barrel.

Indian Stock markets are down sharply.

Rupee depreciated close to the 76 to a dollar mark.

There is a surge in the price of gold.

Future challenges for India

Getting alternative sources for fertilizers and sunflower oil may not be as easy

Pharmaceuticals and tea could face some challenges, as will shipments to CIS countries.

Freight rate hikes could make overall exports less competitive, too.

The biggest concern, for India, however, remains the impact of oil prices on inflation.

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How it will impact India’s defence supplies?

It will have severe implications for India’s defence supplies. Because, military platforms of Russian origin constitute at least over 50% of India’s overall military assets and cut across all three services.

Over 90% of the Indian army’s 3,000-plus main battle tanks are Russian T-72 and T-90S.

India was also in advanced talks to procure another 464 Russian T-90MS tanks.

Meanwhile, a large portion of India’s air force fighter squadrons comprises Russian aircraft, like 272 Su-30MKI.

The Indian navy has a Russian aircraft carrier (INS Vikramaditya) and nine Russian diesel-electric submarines, among other platforms.

All of these require periodic upgrades, maintenance, spare parts and ancillary support. This entire supply chain will become very difficult to obtain under the new sanctions’ regime.

More importantly, India’s plans for S400 missile systems and other possible acquisitions will be effectively dead.

Why India is heavily dependent on Russia for defence supplies?

First, India has tried to diversify its defence imports over the last 15 years. For instance, the purchase of Rafale fighters from the French. But price competitiveness, relatively generous technology transfers, and familiarity between Indian and Russian forces meant that Russian platforms remained the preferred choice.

Second, the well-thought Make in India defense plan was ill-executed, and has had hardly any big successes.

What is the way forward?

First, Russia getting closer to China and even Pakistan squeezing in, India needs to find alternatives now. Incentivising Western arms manufacturers and revisiting indigenization are obvious steps.

Second, the Government needs to pre-emptively cut domestic fuel taxes to remove inflationary expectations.

Source: This post is based on the article “Diversify, finally: Dependency on Russian arms no longer viable” & “The perfect storm: On Russia’s Ukraine gambit” published in The Hindu and ToI on 26th Feb 2022.

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