In the three months since the start of the Russia-Ukraine war, foreign portfolio investors (FPIs) pulled more than Rs. 1 lakh crore out of Indian markets — Rs. 50,000 crores more than the combined withdrawal of the previous nine months.
The mood of FPIs has been sour for a variety of reasons. Monetary tightening around the world due to spiralling inflation has been the major factor behind the pullout from all emerging markets, including India. However, the ferocity with which they have been selling Indian equities in the last three months has been unprecedented.
The FPI pullout has been one of the major contributory factors behind the steep slide in the rupee vis-à-vis the dollar. The rupee depreciated nearly four per cent, from 75.3 against a dollar on February 24 to 77.7 against a dollar by the end of May 31, according to the IMF. The weak rupee has put pressure on imports, especially oil imports that constitute the majority share.
As the weakened rupee made imports expensive, the rise in crude prices only made things worse. Brent crude prices that were hovering around USD 80 a barrel at the start of 2022 shot up to as high as USD 128 a barrel following Russia’s invasion. It stood at USD 122.8 a barrel on May 31, nearly three months after the war began, according to the NYSE.
The heat of the Russia-Ukraine war is now reaching commoners in India and around the world.
“The war in Ukraine, in all its dimensions, is producing alarming cascading effects to a world economy already battered by Covid-19 and climate change, with particularly dramatic impacts on developing countries. The world’s most vulnerable people can not become collateral damage,” said the UN Global Crisis Response Group on Food, Energy and Finance.
The annual inflation rate in India rose to 7.8 per cent in April 2022, the highest since May 2014, as food inflation accelerated for the seventh straight month to 8.4 per cent. Vanaspati oil price on May 31 was 26.6 per cent higher than the same day last year, wheat was 14.3 per cent higher, and mustard oil and sugar were 5.1 and 4.1 per cent higher than the corresponding day of the previous year.
Meanwhile, it is not only in India where food prices and supply are under shock. As many as 45 countries are staring at serious food insecurity, and the eyeballs of many international organisations are glued in this direction.
“The World Food Programme renews its call to open Ukrainian ports on the Black Sea to allow for the export of food amid fears of global hunger and further crises,” said the UN Office for the Coordination of Humanitarian AffairsUkraine.