Govt Worried about Impact of Ukraine Conflict on Trade, says FM Sitharaman

[ABS News Service/01.03.2022]

The Russia-Ukraine crisis has got the government particularly worried about Indian exports, FM Nirmala Sitharaman said on Monday, 28 February 2022 at Chennai.

During a Budget discussion with industry stakeholders in Chennai, Sitharaman said the finance ministry is getting a comprehensive assessment done on the impact of the conflict in discussion with various concerned ministries, and analysing the issues around both new exports and payments for items already exported.

“We are rightly worried about what comes from there, but I am more worried, if not equally, about what’s going to happen to our exporters who are doing very well, especially those in the farm sector,” Sitharaman said. “You can be assured that we are fairly seized of the matter in its granular form because it’s going to have an impact on the essentials like edible oils and fertilizers, among others,” she said.

Sitharaman had earlier talked about the impact of the war on economic recovery in India as well as the world. The latest statements come in the wake of restrictions under SWIFT and fears among exporters that their payments may be held up. Sitharaman asked for industry feedback on any difficulties in payments due to the conflict. While the export volumes are not significant in case of Ukraine or Russia, some of the imports such as fertilisers may be impacted.

Later, speaking at the DD Conclave on Union Budget 2022, the FM said every war is a challenge and the development in Ukraine is a big one. “While no assessment can be made now, we will analyse the impact based on developments. We are seized of the matter,” Sitharaman said, while responding to a pointed question on spiralling international crude prices.

Global prices have crossed $100 a barrel, putting pressure on oil companies to raise retail prices, a move that will impact household budgets and push up inflation. Several commodities have also seen a sharp rise in prices, which will further stoke inflation in the economy.

Amid the troubles Indian students are facing in Ukraine, the education industry raised a request to increase the spend on the sector from the current levels of around 3.5% of GDP to around 6% and thus ensure students don’t have to study abroad in volatile nations. Responding to the query, the FM and her team said that the tax to GDP ratio needs to improve substantially to be able to do that.

“To meet the demands of the industries, our tax to GDP ratio has to double from the current levels of 10-11%. The growth of the expenditure side of the Budget will critically depend on the tax side’s growth,” T V Somanathan, finance secretary, said. Sitharaman added, “I take your concerns very seriously, the Prime Minister Modi has also said about increasing seats at higher education levels, but we have resource limitations and the tax base needs to widen.”

To a query from the jewellery sector to increase limits on digital payments from Rs 1 lakh to Rs 2 lakh, Sitharaman said the NPCI is looking into the matter. Regarding woes of the hospitality industry post-Covid, the FM said there have been recent consultations and meetings with the tourism & hospitality industry after the Budget and she is working on the issues of the sector. In case of the cement sector’s requests to move excess capacity from the South to the North, the FM requested industry representative N Srinivasan, vice-chairman and managing director, India Cements, to meet them and present detailed recommendations and solutions.

Sitharaman said the Union Budgets presented from last year are tuned to shape India towards its 100 years of independence. “If last year the Budget’s focus was on healthcare, this year it is on education. The baseline is the thrust on infrastructure, since every rupee spent on it yields a multiple effect of Rs 2.35 in the same year and 3.45 within 2-3 years,” she said.

Sitharaman said the economic reforms introduced in 1991 were not backed by big policy changes by the successive governments due to their dependence on alliance partners. This government over the last two years has brought in a decisive change in direction on major policies, she added.