While the Russian-Ukrainian crisis is expected to have serious repercussions on global trade flows, the Indian exporting community is watching developments closely. In the event of trade and financial sanctions against Russia, exporters should resort to course corrections, experts say.

The crisis has certainly added to the uncertainty faced by exporters, says the Federation of Indian Export Organizations (FIEO). The industry body has advised exporters to assess the implications of the sanctions before fulfilling any pending orders. “Exporters are advised to wait and watch as the exact implication of banking and financial sanctions needs to be assessed. It is hoped that the liquidation period (to conclude business transactions) would be available in OFAC (Office of Foreign Assets Control) sanctions to support pending transactions,” FIEO President A Sakthivel said.

One way to allay exporters’ concerns would be to quickly clear shipments at ports or in transit, he suggested, adding that the government should be understanding of exporters who suffer losses from the problem.

Russia is India’s main traditional ally. India’s exports to Russia stood at $3.3 billion in January-December 2021, while imports were valued at $8.5 billion. Major export products include pharmaceuticals, organic chemicals, machinery, electrical and electronics, automotive components, and clothing. The main imports are oil and gas, precious stones and jewellery, fertilizers, iron and steel, and paper. Notably, half of the country’s imports from Russia are petroleum products. India’s exports to Ukraine were valued at $509 million in January-December 2021 and imports at $2.6 billion.

The country’s micro, small and medium-sized enterprises (MSMEs), already reeling from the fallout of the pandemic, have enough reason to worry about the crisis. These small companies are responsible for approximately 50% of shipments out of the country.

Animesh Saxena, President of the Federation of Indian Micro, Small and Medium Enterprises (FISME), points out that the crisis is affecting MSMEs on several levels. “We expect large currency swings as the dollar will be very volatile. For MSMEs, energy prices are already skyrocketing. completed in the country, the oil companies will increase the prices, therefore, in the export segment, where the energy costs are large, the cost of production would increase.The increase in oil prices also affects the inflation which is hurting to manufacturing. So any war is a lose-lose proposition,” says Saxena.

Stressing that the Covid-induced global supply chain crisis has already put huge pressure on shipping routes, he says the situation will now get worse. “Shipping costs, container costs and freight rates are already too high. These hurt exporting MSMEs. The Ukraine-Russia crisis will exacerbate these problems now.

There could be an enclave where exports can claim relief. The crisis is likely to depreciate the rupee. But exporters who negotiated dollar contracts could get some relief, says Sanjay Bhatia, co-founder and CEO of Freightwalla. This would help offset some of the pain caused by rising logistics costs. “However, this gain is unlikely to change the medium-term outlook for exporters, as future contracts would adjust to the depreciation. In addition, it remains to be seen how global demand is affected by the conflict. Importers will see likely to increase their landed cost, which will have a ripple effect on India’s entire consumer economy,” adds Bhatia.

There is at least one specific factor that will increase logistics costs. Exporters will have to avoid the Black Sea ports of Odessa, Ilyichevsk and Yuzhniy in Ukraine which they usually use to ship goods to the Commonwealth of Independent States (CIS).

The plastics sector would feel this pinch because, underlines the chairman of the Plastics Export Promotion Council, Arvind Goenka, Russia and Ukraine account for 85% of India’s plastic exports to the CIS. “They will have to use ports like St. Petersburg, where freight rates are quite high. Our exports will become uncompetitive if the delivery time gets longer and freight rates become higher. The government can do something thing to reduce freight Options include facilitating exports via Iran via Bandar Abbas port or overland to reach CIS countries,” he says.

But the crisis could also give a boost to the plastics trade from India to Russia. “With the sanctions imposed on Russia, India could do a rupee-ruble trade deal with that country. It has been done in the past and it has also been done with Iran. Rupee-ruble trade can be restored .if that happens, our trade with Russia will increase significantly,” he adds.

(The one-stop destination for MSMEs, ET RISE provides news, views and analysis on GST, exports, finance, policy and small business management.)

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