First, the loss of purchasing power in EU27 will affect India’s exports. Further disruption in production will affect export of intermediate goods. Even intermediate good imports from EU to India may be disrupted if the production is affected significantly, the ECOWRAP noted.

The sudden shortage of gas in the EU has affected the price of natural gas, concomitantly disrupting the supply in other regions. In South Asia, India, Pakistan, Sri Lanka and Bangladesh are experiencing difficulty in sourcing gas, according to the latest State Bank of India Research ECOWRAP, which said the gas crisis will affect India at various levels.

Current high gas prices will affect the cost of transport using CNG as fuel. City gas distribution companies will see high cost of sourcing, and that will affect urban demand, it said.

Russian pipeline flows to Europe have been dropping since the second half of 2021 and following recent cuts in deliveries, Russian exports to the EU are now down by roughly 60 per cent compared to June 2021 and further downward escalation is a reality.

Additionally, with EU turning importer of fertilisers with its own production unable to meet the demand, international price of fertilisers will witness a rise, affecting India’s food subsidy bill, and hence, the fiscal calculation. Fertiliser crunch is in fact deepening with more than two-thirds of production capacity halted by soaring gas costs as gas is both a key feedstock and a source of power for the sector, it noted.

The current round of gas crisis in Europe will create a fresh round of inflationary pressures in food and transport prices, the report added.

Fibre2Fashion News Desk (DS)