Impact of Russian-Ukrainian Conflict on Fertiliser Sector

Tags: Popular Economics/Business

The Russian invasion of Ukraine on 24 February 2022 will have a negative and positive impact on the Indian economy. The western countries led by the United States have imposed a series of sanctions on Russian companies and banks to punish Russia. Certain Russian banks have been de-linked for the international financing messaging system SWIFT (Society for Worldwide Interbank Financial Telecommunication).

We will try to analyse sector wise impact on the Indian economy. Lets us examine the impact of the war  on the fertiliser sectors

Fertiliser sector 

• India is not self-sufficient in the production of various fertilisers used in agriculture sectors.  India imports Urea, diammonium phosphate  (DAP),muriate of Potash(MOP).

• India imports all its requirements of  5 million tonnes of MOP  of which 18% comes from Belarus . Western countries have imposed sanctions on Belarus for allowing Russia to use its area for staging attacks on Ukraine. The supply from Belarus is likely to be disrupted .

•  India meets its  25% of urea requirement through import.India imports around 10% of its annual urea requirement from Ukraine .

• DAP is mostly imported in India. Indian companies already have an import deal for 400,000 tonnes of DAP with  Russian company Phosagro. It seems unlikely that the contracted  fertiliser will reach India soon .

• Russia is a major supplier of natural gas in the world  which is a key raw material for the production of fertilisers .  Natural gas accounts for around 75 to 80% of the urea produced in India .

• So far the western countries have not imposed sanctions on the Russian oil and gas sector but if that policy changes then the prices of the natural gas will jump significantly making the fertilisers more costly .

• Russia is the world's largest producer of nitrogen and second largest producer of potash and third largest exporter of phosphate in the world.

• With the disruption in the supply chain and jump in the prices of natural gas,the  prices of fertilisers have  almost doubled in the international markets.

Implications for India   

Agricultural sector, which employs about 43  per cent of the country's workforce and accounts for 18.8 percent of (2021-22) in Gross Value Added (GVA) of the country, will suffer.

• The rise in prices of fertilisers and its shortage will adversely affect the production of foodgrains. It will lead to the drop in the production of foodgrains which will further the food inflation in India .

• Food inflation will lead to increasing poverty and inequality in the country especially in the rural areas.

• Fertilisers are normally subsidised in India and with the rising cost of imported fertilisers the government will have to increase the subsidy on fertilizers.In 2020-21, the government spent Rs 127,921.74 crore on fertilisers subsidy and for 2022-23 it has provided Rs Rs 79,529.68 crore as subsidy.

•  The increase in the subsidy bill will increase the government deficit leading to higher inflation.

• The Indian economy,according to RBI,is expected to grow by 7.8% in 2022-23 will face a considerable challenge.