The world is connected. The activities of every nation keep affecting other countries in either a positive or a negative way. And the current situation in the world along with the disastrous Covid, has turned the world upside down economically, socially, politically, etc. But the most affecting aspect is the economy which has been hit tremendously and affected one another.

In July 2022, according to the World Economic Outlook, Covid and other war-like situations have created a burden on policymakers worldwide. Due to Covid, the impact of this slowdown across the world is much deeper and has put all the economies in a fixed spot as to how to proceed ahead to regain economic stature.

The G20 forum that deals with issues related to the global economy consist of 19 countries and 1 European Union, comprises 80% of global GDP, carries 75% of global trade, and has three-fifths of the world’s population. Among these 20 member countries, India, Saudi Arabia, Argentina, Indonesia, and Turkey are fast-growing economies in today’s world. India the world’s sixth largest economy is seeing a 7.4% rise of USD 3.2 Trillion. Among the G20 countries, India is seeing a downward revision. Owing to the current scenario concerning the dynamic changes following is the global picture.

Russia-Ukraine war

India is Russia’s 25th largest trading partner and has a trade-off of $2.5 billion in exports and $7 billion in imports. Russia’s major demand is for pharmaceutical products and mobile phones; while India gets crude oil, coal, and diamonds. Out of these, crude oil and coal are the major driving forces of other industries as well in India.

Russia-Ukraine war is the biggest security crisis that the world is facing today. Russia is also a member of OPEC partners. And due to this war, the management of the distribution of crude oil is under pressure. The prices shot up after the war broke out. This led to the downfall of the share market after March 2020 and the Sensex fell by 4.72% in the Indian market.

Despite this, India has continued to buy crude oil from Russia because of the main reason of its price affordability as compared to other OPEC countries, which would allow us to attain domestic stability and economic interests. If high-priced oil is purchased, a part of the import price can be absorbed by excise duty, while some part of the price will have to be transferred to the customers resulting in cost-push inflation. Hence from an inflation point of view, crude oil from Iran and other OPEC countries is unfavorable to buy for India due to sanctions imposed on Persian Gulf nations by the Trump administration.

Although India does not import a larger chunk of its crude oil supplies from Russia (10%), the crude oil has a direct share of over 9% in the Wholesale Price Index (WPI) basket which leads to household expenses.

The following table shows how the three components of WPI are affected directly or indirectly by crude oil.

Although India is looking to substitute crude oil to overcome this demand and become self-sustainable. Hence, the technological use of ethanol instead of crude oil is being driven at a faster pace but is still in its infant stage.

Russia is the largest ammunition provider for our Indian defense system. 86% of India’s military weapons are imported from Russia.

Increase in interest rates

• Slowdown in China

First time in 46 years did this happen that, the US economy is growing faster than China, the reason being, the strict lockdown on the grounds of zero Covid strategies.

Supply chain disruption- India is trying to become an alternative hub of manufacturing to China with partial success in its hands to date. Due to China’s strict policies, Apple too is looking for manufacturing its products in India and Vietnam but it's still a journey to go. Experts say that, unlike China, India won’t be going back to the lockdown option to eradicate Covid in the nation, which is a very advantageous situation for India.

• Israel- Palestine war

OPEC was formed in 1960. The Arabs then cut down production ad quadrupled the prices per barrel which affected the Indian production system, and this was one of the reasons for the historic emergency in India. Saudi Arabia, Israel,

• Setup of foreign industries in India

Minister of State for Electronics & IT, Rajeev Chandrashekhar has said that Taiwanese and American companies have started to apply for the manufacturing of semiconductors in India. India has rubbished the issue of banning Chinese phones below Rs. 12,000. The only condition is that these Chinese phones are in India and exported to other countries. The main reason is to support and promote Make in India. In the long run, India wants to have production of electronics in the country for a worth of USD 300 billion to get a constant GDP growth of 10% which is currently USD 76 billion. At this point, China is manufacturing phones worth only USD 26 billion in India, which is very negligible and hence we want to increase this number to USD 300 billion. At present, South Korea is manufacturing on a high scale, followed by Apple which exported its Indian manufactured products to the UK which accounted for 27% of India’s exports of foreign products. Japan (24%), Netherlands (23%), Germany (7%), Italy (4%), Turkey (4%), and UAE (2%) as per CMR market research firm. Now the central government of India has asked Apple company to manufacture USD 50 billion worth of goods in India. Also, one of the main reasons for India not banning Chinese phones is to avoid any monopoly of other brands.

• Africa’s inability to pay interest on India’s loan

On August 27, 2022, Africa declared that they won’t be able to pay back the interest on the loans they have taken from India. And hence Africa has offered to give access to their lithium reserves to India. At present Africa holds 300 Lines of Credits (LOC) from India. Africa is very important to India because of the following reasons-

1. No start-up culture in this region. Hence, there is a lot of scope for Indian markets to expand in this zone.
2. To hold a grip over eastern Africa since it is very close to the Indian sub-continent, to avoid China’s dominance in this region.
3. To get the UN security council’s permanent seat, which is impossible without Africa since they have 54 country members in the UN, which is the largest.

This is not a debt trap for India since lithium can be taken back to India and used as raw material for manufacturing. Lithium is the most sought-after mineral, especially by countries that build electric mobility infrastructure using lithium-ion batteries. If India accepts this offer, then maximum work of extraction would be done in Zimbabwe since China too is aggressively mining lithium from this country.

Another important use of lithium would be in the lithium-ion batteries cars and buses that India is trying to develop. All in all, this is a better deal for India.

The current crisis in India’s neighboring countries

An unstable neighborhood creates problems in regional cooperation. China, Sri Lanka, Bangladesh, and Pakistan are the countries with whom India shares its borders. But in recent times, these countries are in grave economic crises which directly or indirectly are affecting India’s economy as well.

• Sri Lanka

Sri Lanka has fallen prey to China’s debt trap. The main reason behind this is covid and misguided policies concerning to investments and loans. India has already given 2 Lines of Credit (LOC) to Sri Lanka to buy the commodities from India they require and not for repayment of Chinese debt. Following this, India now must be reactive to avoid any refugee issues in Tamil Nadu. Loans from China and IMF have led Pakistan to a similar situation.

• Bangladesh

Bangladesh is facing another political storm of gearing up for protests against its Prime Minister Sheikh Haseena. At this point of time, new economic engagement is just that IOC will start to give crude oil to Bangladesh via. Tripura. In 2015, China became Bangladesh’s largest trade partner, defeating India. China has given almost USD 25 billion in loans to Bangladesh which might worry India. This will lead Bangladesh into China’s debt trap and hamper India’s relations with Bangladesh. If China strengthens its hold in Bangladesh, it will affect the development initiatives of North-eastern states under the Act East Policy.

As of September 1, 2022, India’s GDP has grown to 13.5 in the first quarter which is the highest in the world. Other countries are either growing slowly or still facing Covid repercussions. Although RBI expected it to grow by 16% the growth did not meet the forecast. Even US predicted that India would grow by 15.3%.

On September 4, 2022, India took over the UK and became the world’s fifth-largest economy, which is expected to grow by 7% to 7.5%. India’s inflation rate as of today is 7% which will make it difficult for the government to increase the tax. India’s performance of 13.5% growth is noteworthy but the test is yet to pass when next year's base year impact would be over and then we would see whether we make any big records again or not.

.    .    .