Russia-Ukraine conflict: J&K’s cost of living likely to go up

20 February 2022

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Srinagar, Feb 20: With India asking its citizens to leave Ukraine in the wake of grim signs of a potential Russia-Ukraine war, the global economy may be bracing for a major shock, including that of India. J&K is no exception.

Even as there has been strong optimism that diplomacy shall ultimately prevail over a potential Russia-Ukraine war, the window for diplomacy seems to be waning. British Prime Minister Boris Johnson said on Sunday that Russia was preparing for the biggest war in Europe since 1945. The Indian Embassy in Ukraine issued a statement on Sunday advising Indian nationals, including students, to leave the country.

“In view of the continued high levels of tensions and uncertainties with respect to the situation in Ukraine, all Indian nationals whose stay is not deemed essential and all Indian students, are advised to leave Ukraine temporarily. Available commercial flights, and charter flights may be availed for travel, for orderly and timely departure.”

The advisory further asked Indian students to contact the associated persons for flights back to India. “Indian students are advised to also get in touch with respective student contractors for updates on charter flights and also continue to follow Embassy Facebook, website and Twitter for any update,” added the statement.So what could a Russia-Ukraine war mean for India’s economy? In particular, what could be its implications on the already-struggling economy of Jammu & Kashmir and people’s costs of living?

Ziraat Timeshere describes the possible scenarios and their impacts on cost of living in Jammu & Kashmir.

Besides a big spike in oil prices, costs of wheat, corn and soybeans are likely to impact consumer food costs, including cooking oils in J&K, and also in the rest of the country.

Russia is the world’s largest exporter of wheat, and Ukraine is also a major exporter. Combined, the two countries are responsible for 29% of the global wheat trade. Oil prices have recently climbed to over seven-year high on the prospects of war between the two countries. JPMorgan warned on Friday that if any Russian oil flows are disrupted by the crisis, oil prices could “easily” jump to $120 a barrel. In the unlikely event that Russian oil exports are halved, crude would surge to $150 a barrel, JPMorgan said.

Analysts have also warned that wheat prices, in particular, could see further gains in the event of an invasion. Both Russia and Ukraine are major exporters of the grain. Corn and soybean futures were also seen as likely to be lifted. According to Market watch, if a war were to occur between Russia and Ukraine, prices are likely to increase for the big three grains: wheat, corn, and soybeans. “All that would impact consumer food costs, including cooking oils”, Sal Gilbertie, president and chief investment officer at Teucrium Trading was quoted by Market Watch as saying. “A prolonged military conflict that disrupts trade could make much of that wheat unavailable to the export market,” he says.

Food prices, as per the consumer-price index, rose 3.4% annually in 2020 and 3.9% in 2021, a significant increase from 2019’s 1.9% gain. Food prices are expected to rise between 2% and 3% in 2022, according to the U.S. Agriculture Department.

In case a conflict does break out between Russia, Ukraine and their allies, according to Hindustan Times, there will be repercussions for India’s economy. India’s Economic Survey 2022 expects crude petroleum prices to be in the range of $70-75 per barrel over the course of fiscal year 2022-23.

Crude prices have been above $90 per barrel for more than a week now. Tensions between Ukraine and Russia have been a major reason for the recent spike in crude petroleum prices. “Both benchmarks (for petroleum prices) hit their highest since September 2014 on Monday (February 14), with Brent touching $96.78 and WTI reaching $95.82”, Reuters reported.

Analysts continue to maintain that even without the conflict they are likely to remain high. However, a military conflict with Russia is bound to worsen the situation. According to data from the US Energy Information Administration (US-EIA), Russia had a share of 12.5% to 13% in global crude oil production, which is almost half of the total crude oil production in Organization of Petroleum Exporting Countries (OPEC) in the middle east (west Asia) region. If crude prices stay at current levels, or worse, increase even more, most of the budgetary calculations could become redundant as the government would face a triumvirate of economic challenges on the fiscal (it will have to cut taxes), inflation and current account front, Hindustan Timesreported.

The energy impact of a military conflict involving Russia will not be limited to crude oil prices alone. Western Europe is also dependent on natural gas supplies from Russia to a very large extent (40% according to a Reuters story) and a disruption in supplies, which is what will happen with a military conflict, will generate additional tailwinds for energy prices in Europe. This is bound to feed into global inflation. This again is bad news for India, the Hindustan Times report said.

If Russia does invade Ukraine and there is a larger conflict involving US and its other NATO allies, it is to be expected that US and other advanced countries will impose economic sanctions on Russia. Often, these sanctions also hold for countries trading with an aggressor.

Data from the Centre for Monitoring Indian Economy’s (CMIE) database shows that Russia has been losing its importance when it comes to trade with India. Before the collapse of the Soviet Union, Russia was an important export destination for India and it had a share of almost 10% in India’s total exports. This number has come down to less than 1% by 2020-21. To be sure, India’s overall trade has increased in this period. Russian imports had a share of 1.4% in India’s total imports in 2020-21. India’s total trade with Russia in 2020 was $9.31 billion, the brief adds.

This situation could mean another wave of inflationary trend in Jammu & Kashmir, which continues to rely heavily on diesel fuel fed trucks for the transportation of goods and commodities. It could also mean a more expensive food basket, considering that J&K is heavily dependent on wheat for its large bread basket and imported cooking oils. All this could translate into greater cost of living, assuming that the conflict would remain limited to eastern Europe.