Tuesday, September 27, 2022

Sanctions can have unintended effects: FM

Finance Minister Nirmala Sitharaman has said that in an interconnected world, sanctions can have unintended consequences, and India is trying to work through them.
Economic sanctions imposed on Russia by the US and European Union following the invasion of Ukraine in February this year have led to a fall in bilateral trade with Moscow. The ongoing war also fuelled energy prices and a shortage of foodgrains.
Speaking at Stanford University, she said India’s stand on the Russia-Ukraine war is with the view to safeguard its economic and security interest.
“So, India’s position is not just for its economic interests, but also its security interests. The balance that India has taken in every decision in this context… because of the geopolitical location of India,” she said.
Sanction always has an impact on not just the country on which it is imposed but on many other nations, she said, adding “it can have collateral impact on many others who probably didn’t intend to have the sanction”.
So, unintended consequences do bear an immediate and strong impact on countries in this digitally connected world, she said.
Speaking about inflation, Sitharaman said in the interconnected world it spreads faster.
This time it is not because of the US Fed tightening its monetary stance but the Russia-Ukraine war.
Inflation is going to be largely driven by rising commodity prices and foodgrains, she said, adding the war has led to the shortage of wheat and edible oil.
Crude oil prices are not coming below the USD 100 per barrel level and affecting many countries.
India imports about 85 per cent of crude oil from various countries, including Russia.
Noting that inflation causes worry, she said the RBI is ceased of the matter and moving in that direction to keep it within the targeted band.
Recently, the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das expressed concern over inflation and stressed that the central bank will have to constantly re-assess the “dynamic and fast-changing situation” and tailor its actions accordingly.
MPC, which held its meeting from April 6-8, unanimously decided to keep the borrowing costs unchanged at a record low for the 11th time in a row in a bid to continue supporting economic growth despite inflation edging higher, especially in the wake of the Russia-Ukraine conflict.
The government has mandated the central bank to keep the inflation at 4 per cent (+,- 2 per cent).