With the withdrawal of credit guarantee protection on commodities, restrictions on Russian banks and disruptions at Baltic ports amid the Ukraine war, Indian exporters to Russia and the Commonwealth Independent States (CIS) face uncertainty over goods worth $500 million.
India’s annual commerce with Russia, European Union and CIS countries is estimated to be about $90 billion.
As the conflict began, oil prices jumped over $7 in early trade on February 28, while several countries imposed economic sanctions on Russia. Meanwhile, Vladimir Putin ordered his defense chief to put his nuclear “deterrence forces” on high alert, which caused further alarm.
The government-owned export credit provider, Export Credit Guarantee Corporation of India (ECGC) revoked coverage for exports to Russia. According to industry data, India exports $2.5 billion worth of commodities to Russia each year, and another $1.5 billion to CIS countries.
In terms of bilateral trade, India imported $6.9 billion from Russia and exported $2.5 billion during the first nine months of FY22.
Fuels, mineral oils, pearls, valuable or semi-precious stones, nuclear reactors, boilers, machinery, and mechanical appliances are the most common imports. Pharmaceuticals, electrical apparatus and equipment, organic chemicals, as well as vehicles are among the commodities it exports to Russia.
Additionally, between April and December 2021, India’s trade with Ukraine was $372 million, according to reports. Ukraine’s major exports to India were vegetable fats and oils (73.3%), fertilizers (10.6%), nuclear reactors, boilers, and machinery (5.2%). Pharmaceutical products (32.7%), electrical machinery (7.8%) and other items were the most common Indian imports by Ukraine.
However, experts earlier claimed that a three-month conflict with high crude prices might increase India’s trade imbalance by 200 basis points at the very least.
Now, according to reports, traders fear an increase in freight charges, which have already risen owing to port closures during the Covid-19 outbreak. Container charges have risen by 81% in the last year.
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ECGC has stated citing the near-term commercial outlook that it has been agreed to revise the country risk categorization of Russia under the short-term, medium-and-long term with effect from February 25.
The United States Office of Foreign Assets Control’s sanctions on Russian banks, as well as equivalent steps by European governments, have rendered transactions in dollars and probably euros, as well as pounds, impossible for Russian dealers.
However, SC Ralhan, who distributes hand tools to Russia, is one of the Indian exporters reportedly affected due to the current situation. For exporters like him, the development has caused huge uncertainty in the coming months.
Many other industry experts believe that India’s trade with Russia, especially through containers, is a small percentage of the total and the impact will be minimal.
Meanwhile, officials from India’s external affairs and commerce ministries are presently reviewing the punitive measures by the United States and its allies to see how they may affect India.
The Directorate General of Foreign Trade (DGFT) on February 25 established a helpdesk to monitor the status and obstacles being experienced by stakeholders.
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