Rising international commodity prices are the most significant risk emanating from the ongoing conflict as Russia and Ukraine are global suppliers of essential commodities, found the latest FICCI economic outlook survey.
And if the conflict prolongs, it will further hit supplies of primary raw materials, including crude oil, natural gas, food, fertilizers, and metals, showed the report.
As for India, the country is not likely to remain unscathed. Given that India remains a net importer to meet its energy requirements, the sharp rise in crude prices significantly shocks India's macro-economic framework. Moreover, the impact on the economy is expected to be more severe if the conflict is prolonged, the survey findings showed.
The participants believed that inflation continues to be the most significant risk for India as well. Surging crude oil prices are likely to impact India's macros adversely. An increase in oil prices coupled with the sharp fall in Rupee value is inflating India's import bill adding to the stress on the current account, noted the report.
Economists in the survey opined that fiscal policy should be on the front foot at this juncture, and inflation pressures could be contained via excise cuts/subsidies. This will be important to safeguard private consumption expenditure as inflation pressures gain strength.
There was a unanimous view on the monetary policy that the Reserve Bank of India will refrain from undertaking policy reversal in the forthcoming monetary policy to be announced on April 8, 2022, the report showed.
However, the Reserve Bank of India was expected to continue to support the ongoing economic recovery by keeping the policy repo rate unchanged at the meeting in April. Growth impulses are still nascent, and the report showed that consumer confidence has been subdued and is yet to get back to pre-pandemic levels.
The skyrocketing crude oil and industrial inputs prices pressure consumer costs through imported inflation. Even though the passage to consumers has been limited so far, economists expect a pass through the next fiscal year.
Participants in the survey believed that the RBI would look at reversing its stance in the second half of the current year (2022), and one can expect a rate hike between 50-75 bps by the end of this fiscal year.