India is likely to rank among the worst affected emerging economies by the Russia-Ukraine crisis as a surge in global prices of commodities is set to upend spending plans and derail its pandemic recovery, analysts note. 

If the conflict lasts, India, which imports close to 85 per cent of its oil needs, is likely to see its fiscal, trade and account deficits swelled by a surge in crude oil prices to their highest in more than a decade, which will also fuel inflation. 

“The contagion from currently rising geopolitical tension is unlikely to remain limited to financial assets and warrants a change in our key macro forecasts for FY23,” notes Abheek Barua, the chief economist of HDFC Bank.

February’s Budget was based on an average oil price of $75 to $80 a barrel for the financial year, starting from April 1, but Brent briefly soared on Monday to nearly $140, its highest in over a decade. 

A senior government official points out that if oil prices average at about $100 a barrel in the fiscal year to March 2023, that could shave 90 basis points off growth, taking it below 8 per cent from a forecast range of 8% to 8.5 per cent. 

In such a scenario, inflation is seen rising by 100 basis points, and the current account deficit could widen by 120 basis points to 2.3 to 2.4 per cent of GDP. 

DBS Bank says every increase of $10 a barrel in the price of oil lifts India’s consumer price index-based inflation by 20 to 25 basis points, widens the current account gap by 0.3 per cent of GDP and pose a downside risk of 15 basis points to growth.