World

The ongoing Russia-Ukraine conflict has had a long history and with threat perceptions on both sides. However, the conflicts and wars benefit only a few, and that too in the short term. The world must work together to end this crisis at the earliest. Or else, its cascading effect might push the whole world into an abyss from where the recovery would become extremely difficult. The underdeveloped and the developing world are likely to be the worst affected and they all must come together to pitch for peace.

The financial warfare against Russia, inter alia, has cut off Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) thereby blocking Russia from rapid money transfers internationally. Even though SWIFT accounts for no more than 1 percent of the transactions involving Russian entities and payments, the ban may potentially disrupt its trade in energy and agricultural produce as well as Foreign Direct Investment (FDI) and Foreign Institutional Investors (FII). In totality, the sanctions against Russia may shrink its economy by 5 percent. The current crisis has made many countries of the world think of developing alternative payment systems and capabilities. This would be a challenging task as the alternative to SWIFT would work only when a larger number of countries become willing to cooperate and agree to become a part of the alternative network.

The Russia-Ukraine conflict can intensify the already shaken economic conditions created by COVID-19 as inflationary pressures might have an effect on many countries. Investors in Central and Eastern Europe are cautious with their investments. As per an IMF report, the sanctions imposed against Russia will impact the global economy. It clearly seems to have already affected FDI and portfolio investment in many countries, including India. For the sixth month in a row, foreign portfolio investors (FPIs) were net sellers in February, selling shares worth $4.9 billion. It was also the most shares sold by FPIs since the epidemic began in March 2020, when they sold $8.3 billion worth of stock. The Union Finance Minister of India had stated that the Russia-Ukraine conflict and surge in crude oil prices pose risk to the financial stability of the country.

As Russian troops reach Kyiv, the capital of Ukraine, the Brent crude prices have already touched $110 a barrel, a level that was breached 8 years ago in 2014. The moot question, therefore, is, whether or not India was ready to anticipate and handle the consequences arising out of such a crisis with minimal disruptions. Taxes on petroleum, today, may be a major source of revenue but is also vulnerable to volatility impelling upon the need to look for an alternative but stable source of revenue to the government.