Tackling The Commodity Crisis

Value-added products, change in fuel-mix, inventory light model — and the inevitable price hikes are some of the steps India Inc. is taking to address volatile commodity prices.

- RAJIV RANJAN SINGH

FOR INDIAN policy makers, the war in Ukraine has prepped up the battleground in India for a different struggle — against a looming commodity crisis that threatens to drag the country’s 1.3 billion people into a quagmire of ‘stagflation’.

In stagflation, prices rise to such a level that they start strangling demand, slowing down the economy, resulting in lower purchasing power and widespread job losses. From there on, it is a vicious cycle of low demand fuelling low production fuelling high prices fuelling lower demand.

Even though Russia is a marginal trade partner for India, accounting for just 1.4% of our imports and 0.9% of exports, Moscow still holds the key to India’s economic well-being due to its dominant role in supply of natural resources which have already been badly disrupted.

Boardroom honchos faced with supply disruptions, soaring prices and artificial shortage of commodities are responding with value added products, lower inventory and re-jigging fuel mix — besides the inevitable price hike in finished products.

Russia’s Commodity Spiral

Though Russia accounts for just 1.77% of global GDP, the world relies heavily on its natural resources. In 2021, it supplied 42% of global ammonium nitrate (key raw material for fertilisers), 21% of global wheat, 43% of palladium, 14% of platinum, 11% of nickel and 6% of aluminium. Coupled with Ukraine, it accounts for 40-50% of global neon production, says a report by Switzerland-based LGT Private Bank.