Ukraine crisis sinks Indian markets, set to hit bilateral trade with Kyiv

The worsening Ukraine-Russia situation has the world worried, as it has wider security and economic implications for several countries, including India, with growth yet to come back on track following the coronavirus outbreak.

Indian equities crashed more than 2 per cent at the opening bell on February 22 after Russia recognised two rebel-dominated regions of Ukraine, escalating the simmering crisis that has scorched markets across the world for the past several days.

Bilateral trade

India is Ukraine’s largest export destination in the Asia-Pacific and the fifth largest overall, official data shows. A breakout of hostilities will hit bilateral trade between the two countries.

India’s main exports to the European country are pharmaceutical products, reactors/boiler machinery, mechanical appliances, oilseeds, fruits, coffee, tea and spices among others.

Ukraine is India’s major exporter of sunflower oil, followed by inorganic chemicals, iron and steel, plastics, chemicals among others.

India’s bilateral trade turnover stood at $ 2.52 billion in 2019-20, up over 25 per cent from 2.01 billion in 2015-16. However, the turnover in 2019-2020 declined by 7.59 per cent from 2.73 billion in 2018-19.

India’s exports have surged a whopping 79 per cent from $259.11 million in 2015-16 to $463.81 million in 2019-20. Imports, on the other hand, have increased by over 17 per cent from $1751.1 million to $2060.79 million during the given period.

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Pharmaceuticals account for the majority of Indian exports to Ukraine. India is the third-largest exporter of pharmaceutical products to Ukraine, after Germany and France, in value terms.

A number of Indian companies like Ranbaxy, Dr Reddy’s Laboratories and Sun Group have their representative offices in Ukraine. Representatives of major pharmaceutical companies have set up an Indian Pharmaceutical Manufacturers’ Association (IPMA) in Ukraine.

The biggest macro headwind for India is a rally in crude prices. The inflationary consequence of this will force the Reserve Bank of India to abandon its dovish monetary stance. Crude oil has surged about 3.5 per cent to $97 per barrel, while gold has crossed the $1,900 mark amid risk aversion.

The India-Ukraine bilateral trade assumes significance amid the escalating border tensions between the Eastern European nation and Russia.

With the region’s peace hanging in balance, Indian companies with exposure to the European Union have come under pressure as investors fear the impact on business from the escalating tension.

Shares of Tata Motors, Tata Steel, JSW Steel, Motherson Sumi Systems, Varroc Engineering, Endurance Technologies, Dr Reddy’s Laboratories, and Bharat Forge declined 2-4 per cent.

Evacuation begins

A special Air India flight (AI-1946) has departed from Delhi to bring back Indians from Ukraine, news agency ANI reported. It will fly back Indian citizens later in the night from the Boryspil airport in Kyiv. The airline has said that it will be operating three flights on February 22, 24 and 26 to Ukraine.

Voicing “deep concern” over the escalation of tension along the Russia-Ukraine border, India has told the UN Security Council that the immediate priority is de-escalation of tensions, taking into account the “legitimate” security interests of all countries.

Russian President Vladimir Putin on February 21 signed decrees recognising Ukraine’s regions of Donetsk and Luhansk People’s Republics as independent, escalating the tension in the region and increasing fears of Moscow’s invasion of Ukraine.

Putin has also ordered troops into eastern Ukraine in what the Kremlin called a “peacekeeping” mission.

The United States is coordinating with allies and will announce new sanctions against Russia after Moscow recognized two breakaway regions.

“The United States will impose sanctions on Russia for this clear violation of international law and Ukraine sovereignty and territorial integrity,” US Ambassador to the United Nations, Linda Thomas-Greenfield, told reporters after a UN Security Council meeting on Monday evening.

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