A direct economic impact of Russia’s Ukraine war is that prices of food, energy, fertilizers will tend to rise unless the conflict ends up soon. This is especially due to the fact that Ukraine is a major food grain- wheat and corn- producer; Russia, a major supplier of natural gas to Europe, and the Black Sea area is a major hub of fertilizer production and trade. Besides, it has also brought to the public domain the severity of sanctions imposed by superpowers on their opponents. In a warring situation, governments feel the strength of domestic capabilities and the need to foster policies promoting and nurturing the public sector.
Impact of Sanctions
A variety of sanctions are imposed on Russia by the US, European Union, UK, Japan, Germany, Canada, and Australia. This included the freezing of assets, banning trade, investments, purchase of sovereign debts, access to fintech solutions, banning the use of airspace, stock exchanges, and blacklisting of politicians and officials and so on. Modern governments find it difficult to sustain operations and people are put to numerous difficulties in everyday life without the support of these transactions. Even domestic transactions are adversely impacted on account of these sanctions.
Ever since the outbreak of the war, global IT, finance, technology, and manufacturing powers have shown that any nation, however powerful and capable they are, can be subjected to restrictions and denial of access to important services, systems, and linkages. Even after being partially aligned in Quad and nonaligned in power groups, India is being asked to take sides and subjected to restrictions to even agreed systems so that the country is forced to take sides.
Importance of Self Reliance
Banks and such technology-oriented institutions, who are dependent on foreign networks and clouds need to be supported by local servers to ensure services can continue. Academic, research and development, skill and manpower training needs including higher education need a thorough review in this context and we have to develop our own institutions and strengthen existing ones using indigenous resources and capabilities. Even military requirements need to be strengthened with indigenous manufacturing and service support.
All the above highlights the need for self-reliance at least in critical areas like IT/ ITES capabilities, banking, technology development and the rapidly emerging frontier technologies and advancing developments in current science. Professionals and organizations including quality and standards regulators need to relook, re-engineer and dedicate themselves to ensure national capabilities and shun self-imposed walls in the name of independent working for their own name or economy of scale and adopt a cooperative and collaborative approach.
The conflict has already taken a toll on the energy markets all over Europe. Russia supplies about one-third of Europe’s natural gas supply, the main feedstock to major power and chemical producers who will be forced to shut down the units if gas prices continue to rise. Heating and power prices are already rising. Media reports say that by the end of the month, the intensity is going to be severe for the households, businesses, and heavy industries which need the energy at a fair price to operate comfortably.
Ukraine & Russia: Major producers of fertilizers & raw materials
The aggression is going to impact our fertilizer supplies in a big way with regard to price and availability. Around 2.4 million tonnes of ammonia was shipped from Pivdenny port (Odessa) in 2021, of which only 0.15 million came from Ukraine and the rest came from Russia, supplied through Togliatti Azot and Rossosh pipelines. Russia is the second-largest producer of ammonia, urea, potash and the fifth-largest producer of complex phosphates. The country accounts for 23% of the global ammonia export market, 14% of urea, 21% for potash and 10% of the complex phosphates. The war has already started disrupting global fertilizer market, as Russia is a leading supplier of fertilizer and related raw materials. It is also the largest exporter of urea, NPKs, ammonia, UAN and ammonium nitrate, and the third-largest potash exporter. In the phosphatics sector, traditionally dominated by China and Morocco, Russia is a major exporter with 4 million tonnes per year of DAP/MAP shipments last year. The Black Sea ports of Yuzhny and Odessa are major fertilizer handling ports with pipeline transport facilities for ammonia from Russia.
India’s overdependence on imports of raw materials & fertilizers
India depends heavily on imports for meeting its fertilizer raw materials (natural gas, sulphur and rock phosphate), intermediates (ammonia and sulphuric and phosphoric acids), and finished products (diammonium phosphate, potash and complex fertilizers) requirements. The self-sufficiency in urea production achieved by 2000 was lost due to unfriendly policies which discouraged further investments in the sector for two decades and also due to the privatization move and closure of a number of plants on account of low energy efficiency which paved the way for large scale imports.
India, the world’s largest urea importer, is also a major importer of phosphatic and potassic fertilizers. Urea imports amount to 8-9 million tonnes per annum mostly from China, Oman, Ukraine, and Egypt. China has restricted urea imports since October 2021. As gas prices go up, imported ammonia price also follows suit. A significant part of the supply shortage could be met by maximizing production in the newly commissioned fertiliser plants at Gorakhpur, Barauni and Sindri. On an average, 5 million tonnes of phosphatic fertilizers are imported to India mostly from China, Morocco, S. Arabia, Russia and Jordan. Potash supplies (around 4 million tonnes a year) are totally imported from Canada, Russia, Belarus Jordan, Lithuania, Israel, and Germany. Current imports, of course, are going to be at much higher rates due to the emergent situation in these countries. Earlier, our major suppliers of DAP were Saudi Arabia, Morocco and China. China has already restricted exports of DAP last year, so India is already constrained to tap Morocco and Saudi Arabia and Jordan. Estimates of fertilizer subsidy allocation of Rs 1.05 lakh crore for 2023 in the recent budget are likely to go haywire on account of the war.
Adverse Impact due to supply chain disruption
Here again, disruption in production in Russia and Ukraine and closure of plants in Europe will result in an increase in fertilizer commodity prices all across the world. A shift in product movement from traditional markets will lead to price volatility in the global fertilizer market significantly impacting availability. Had we continued the fertilizer expansion policy of the 1980s and 1990s, where fertilizer PSUs contributed significantly to meet our demand for mineral-based plant nutrients, we would not have been in such a precarious situation as we are now. Today, Indian farmers are hard-pressed for the easy availability of fertilizer products whose prices have also skyrocketed. Only urea which still remains under administrative price control is cheap and affordable to farmers. The immediate need of the hour is that the government of India rushes to tie up alternate supplies and ensure adequate availability of mineral nutrients to the farmers. Any laxity in doing so will adversely impact the food security of the nation.
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