What does Indian trade stand to lose and gain from Russia-Ukraine conflict?

The Russian invasion of Ukraine and subsequent sanctions slapped by the West on Moscow have played out in different ways for Indian trade. While our import and export to the two warring nations have been hit adversely, there are some sectors which stand to gain from it. Like the export demand for wheat and corn has shot up. Let’s delve into all these aspects and also looks into the problems that the importers and exporters are facing.
 
Trade with Russia and Ukraine is a small portion of India’s overall cross-border trade. However, specific commodities traded between the countries are important.
 
Mahindra and Mahindra group chief economist Sachchidanand Shukla told a financial daily that tea exports from India and sunflower oil imports could get affected.
 
He explained that 84% per cent of India’s sunflower oil imports came from Ukraine, while 13 per cent of India’s tea exports went to Russia. And, as the financial daily pointed out, supply disruption in sunflower oil could become a pressure point on India’s retail inflation. India is also a big importer of phosphatic fertilizers from Russia.
 
While on the other hand, Indian exporters to Russia and to the Commonwealth Independent States are reportedly facing uncertainty over goods worth 500 million dollars.
 
This is because of three broad reasons. First, the withdrawal of credit guarantee protection on commodities. Second, the restrictions on Russian banks. And, third, the disruptions at Baltic ports amid the Ukraine war.
 
The Federation of Indian Export Organisations has said that export cargoes to Commonwealth of Independent States countries have been impacted because no shipping line is willing to take consignments there. This is because there is no movement of ships through the Black Sea.
 
Indian exporters fear that payments worth about 400 million dollars might get stuck. This is because western nations have blocked many Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication, or SWIFT.
 
Exporters have found that many buyers do not have the ability to make payments in any foreign currency or from a third-party or country. But, they have shown willingness to make payments in the ruble.
 
Against this backdrop, multiple sources told Business Standard that the government might soon allow bilateral trade between Russia and India in their national currencies. Such a step would be taken to avoid any trade disruptions. The rupee-rouble trade arrangement will bypass the sanctions imposed on Russia by the West.
 
Mahesh Desai, chairman of the Engineering Export Promotion Council, said:
* India goods find their way to central Asia through Ukraine's Odessa port
* Uncertainty over goods in transit, payments because of SWIFT ban
* Govt should extend help to affected exporters
 
India-Ukraine bilateral trade
* $2.3 billion: India-Ukraine bilateral trade so far in FY22
* This includes $372 million exports and about $2 billion imports
* $2.5 billion: India-Ukraine bilateral trade in FY21
 
India-Russia bilateral trade
*$9.4 billion: India-Russia bilateral trade so far in FY22
* This includes $2.55 billion exports and $6.9 billion imports
* $8.1 billion: India-Russia bilateral trade in FY21
 
Citing sources, another news organisation reported that the sanctions would have a negative impact on India's trade with Russia when it comes to commodities such as automobile components, pharmaceuticals, engineering goods, agricultural products, and telecom equipment.
 
In particular, Union Finance Minister Nirmala Sitharaman is concerned about exports of Indian farm produce to Ukraine and Russia being disrupted. 
 
However, there is a silver lining too. According to a recent report by one financial daily, export demand for Indian wheat, corn, and spices has seen a significant rise after Russia invaded Ukraine. International trade would be shifting sourcing to India since supplies from the two counties have come to a halt.
 
Russia holds sway in the world metals supply. According to Crisil Research, Russia and Europe together account for nearly 10 per cent of global primary aluminium supply. As far as the steel trade is concerned, it is the second largest exporter with a 13 per cent share. As worsening tensions threaten supply, exporting countries including India may step in to plug any gap. Russia exports around 30-33 million tonnes (MT) of steel.
 
Meanwhile, a new agency reported that India is considering guarantees of lenders’ letters of credit and soft loans for exporters hit by a cash squeeze following. The government is also mulling asking state-owned banks to lend to exporters at reduced rates or provide funds to them directly up to the amount of pending payments from Russia and Ukraine.