Government policymakers took stock of developments on Thursday to assess the possible economic or financial fallout of the Russian attack on Ukraine. The mammoth LIC IPO is expected to take place next month.
The finance ministry also held internal meetings on the Russia-Ukraine conflict. Separately, the Prime Minister’s Office reviewed the oil situation with petroleum and finance ministry officials.
“We are closely monitoring the situation and we are prepared with our responses, if the need arises,” said the official cited above. “The situation is of concern, but not of alarm as of now.”
The official said there is no rethink on the proposed LIC IPO, expected to be the biggest ever to hit the market.
LIC has already filed a draft red herring prospectus with the Securities and Exchange Board of India (Sebi) and the government expects the listing to be completed by March.
Key stock indices dropped nearly 5% on Thursday as the crisis reverberated through global markets already roiled by record-high inflation in the developed economies and the prospects of a sharp rise in interest rates.
‘Ready to Tackle Crisis’
India’s primary concern is crude prices, which crossed $100 a barrel. Oil marketing companies, facing losses due to the rise in prices, have flagged the issue to the petroleum ministry.
The government has worked out the revenue implications in case prices remain high for some time and excise duties need to be cut to offer relief.
“Oil imports are going to hurt. But we are prepared for the crisis, and our calculations are ready, if the government has to share the burden,” a finance ministry official said.
High crude prices could cause inflationary pressure, given that India imports over 80% of its needs, worsen external accounts and raise fiscal pressure.
Policymakers, however, expect other producers to step up supplies, which would cool prices. A rise in Iranian supply is one possibility. Higher prices could also trigger more production in the US.
India-Russia trade is too small to be seen as a major concern. Bilateral trade in FY21 stood at $8.1 billion, with Indian exports at $2.6 billion and imports from Russia at $5.48 billion. Trade with Ukraine is even less at $2.5 billion.
Risks to Financial Stability
Finance minister Nirmala Sitharaman had on Tuesday said the Russia-Ukraine tensions and a surge in crude oil prices posed risks to the financial stability of the country and that the government was closely monitoring the situation.
“Even today in the FSDC (Financial Stability and Development Council meeting) when we were looking at the challenges posed for financial stability, crude was one of the things,” she told reporters. “International worrisome situations, where we actually voiced that we want diplomatic solutions for the situation developing in Ukraine, all these are headwinds.”
