The Russia-Ukraine conflict could weigh heavily on India’s tea exports to the CIS if the situation does not settle down quickly. Tea exports to CIS account for nearly 23-24 per cent of the country’s total exports. According to Anshuman Kanoria, Chairman, Indian Tea Exporters’ Association (ITEA), Russia is a long term and a very stable market for Indian tea. So, the exporters are closely watching the developments sto assess possible impact.
“If the situation settles down quickly then there should not be much of an impact, but if it plays out, then the West is talking about retaliation, then we have to see (what the impact would be). While worrying about the human cost and hoping that things should resolve quickly, we are watching any economic fallout from west -- value of rouble and the impact of all this on oil prices as it will fuel inflation and impact cost of logistics,” Kanoria told BusinessLine.
Tea exports
India’s tea exports to total CIS stood at 40.17 million kg (mkg), valued at around ₹744 crore during the period January-November 2021, according to statistics available on the website of the Tea Board of India. Of this, exports to Russian Federation stood at 30.89 mkg, estimated at ₹558 crore, accounting for nearly 77 per cent of the total exports to the CIS. The total export to Ukraine during the period was at 1.6 mkg (valued at around ₹30 crore); Kazakhstan 6.25 mkg (₹127 crore), while other CIS stood at 1.43 mkg (₹29 crore).
Exports during same period (January -November 2020) last year stood at 46.39 mkg valued at around ₹823 crore.
It is to be noted that the country’s tea exports during calendar year 2021 have been impacted due to the lack of clarity over payment mechanism with Iran and the higher prices of Indian CTC (crush-tear-curl) tea compared to the African counterpart. While actual figures are still not available, estimates suggest that tea exports from India are likely to be lower by around 12-13 per cent at close to 180 million kg (mkg) during calendar year 2021 against 207.58 mkg in 2020.
However, the lower exports were also due to lower crop produced during the last two years (in 2020 due to Covid-induced lockdown during peak plucking months and in 2021 due to unfavourable weather conditions).
“As we return to normal functioning and with production expected to be good this year, it is very important for exports to pick up otherwise it can put pressure on prices,” an industry insider said.
Impact on oil and natural gas
The conflict is also likely to push up commodities prices in India, particularly that of oil, natural gas and certain metals such as aluminium and steel.
While Brent crude oil crossed $100 a barrel, natural gas April futures increased by about five per cent to $4.817 per mmBtu. According to Hetal Gandhi, Director, CRISIL Research, the conflict between Russia, the second-largest exporter of crude oil with 12 per cent market share, and Ukraine, has expectedly raised already-elevated crude oil prices to 8-year highs.
“The prices could stay over $100 per barrel in the near to medium term unless the Opec decides to increase output materially. Interestingly, over the past three months, Opec members haven’t been meeting their production targets, which has influenced prices. The upshot is energy and trade-deficit negative for India, since we import nearly 85 per cent of our crude oil requirement,” Gandhi said.
The Russia-Ukraine war will also have a big bearing on global natural gas markets, since Russia produces nearly 17 per cent of it and has a 25 per cent share of total gas exports. Thankfully, India’s gas requirements are locked in contracts with Qatar, the supply of which is unlikely to be affected if the war doesn’t spill over. However, the impact of higher gas prices would be felt in India, just like everywhere else.
Talking about the impact on the overall economy, Prashant Vasisht, VP and Co Group Head, ICRA, said India’s import bill and current account deficit might increase, which will have a bearing on exchange rates as well. The increase in crude oil prices will have an impact on product prices and an inflationary impact.
According to Vandana Hari, Founder, Vanda Insights, Singapore, the worst-case scenario is unfolding. “Putin’s moves could provoke the full onslaught of US and EU sanctions, putting Russian energy supplies to Europe in the crosshairs. Crude’s rally may have only just begun, as the full impact on global oil and gas supplies is yet to be seen and factored in. Prices may continue to be bound higher with every unfortunate turn of events. The door to a diplomatic de-escalation is not firmly shut, but it will take some major efforts to kick it open again,” she said.
Impact on metals
Russia contributes almost 12 per cent to global trade in aluminium. Since aluminium already has a tight demand-supply balance and therefore a low inventory level world-wide, any sanction imposed on Russian aluminium exports will aggravate the metal availability in the rest of the world, possibly keeping prices at a high level till normalcy is restored, said Group Head and Senior V-P, ICRA.
(With inputs from Richa Mishra, Hyderabad)