A new challenge to the government and the RBI in the wake of the war

- If certain steps are not taken then adverse factors will become more prevalent in the near future

Markets around the world, investors and economic policy makers are feeling the shadow of Russia's invasion of neighboring Ukraine, but if the conflict continues for a long time, India will be among the most economically affected countries. The rupee has fallen to record levels. The rupee has now become the worst performing currency in Asia at 404. This happened when the Reserve Bank of India took all measures to stem the rupee's decline. The stock market also saw a decline and the Sensex fell to its lowest level since mid-last year. The price of crude oil has reached સ્ત 150 a barrel and it is feared that if war continues, it could touch થી 150 to ૨ 200 a barrel in a few weeks. Under these circumstances, the apprehension being expressed about the weakness of the Indian economy is also understandable.

Rising commodity prices could put pressure on our economy as we import 3% of our oil needs. Based on this year's Union Budget estimates, oil prices will be around ૭૫ 3 a barrel, so even those figures are no longer reliable. Actual growth will also be weaker than expected and it will be difficult to manage the fiscal deficit as a percentage of GDP even if there is no significant change in government spending. The government will have to bear the increased cost of fuel, which will increase its costs.

The challenge facing the Reserve Bank of India is a weaker rupee. Yields on 10-year government bonds rose seven basis points to close at 7.8 per cent. There is still room for growth and higher rates will make debt management more difficult. Not only crude oil prices but also edible oil prices will lead to inflation. These prices have already exceeded the Reserve Bank's mild limits.

Sunflower oil prices have risen and are likely to rise further. Because Ukraine and Russia account for about 50 percent of the world's sunflower oil trade. In such a supply shock, the central bank will not be able to do much more and it will be difficult to avoid growth stagnation and high inflation. The new emerging situation will add to the difficulty of policy selection for the Reserve Bank. The government should be prepared to face adverse conditions like 2015-2016 when high commodity prices and weak growth as well as rupee, inflation and external accounts were affected.

Thus, looking at all these issues poses a big challenge to the economy. In the current context, the government as well as the central bank will have to take specific steps. Otherwise, it is unreasonable to say that adverse factors will become more prevalent in the near future.