Impact of Economic Sanctions on Russia

In News

• The economic sanctions imposed by the US, UK, and the EU on Russia for going to war against Ukraine could prove to be detrimental to the country. 

Economic Sanctions

• About: 
  • These sanctions can range from export restrictions to trade embargos and seizure of assets.
• Meaning: 
  • Economic sanctions are penalties or bans that are levied against a country to push it to modify its strategic decisions. 
  • They include withdrawal of customary trade and financial relations for security and foreign policy purposes. 
• Impact: 
  • Sanctions could result in cutting economic ties in every respect such as terms of trade, financial assistance, transit support, travel bans, asset freezes, and trade restrictions. 
  • The curbs could also be targeted, thus restricting transactions with certain businesses, groups, or individuals. 
  • The domestic economy could also be deprived of external market support. 
  • The risk element is high especially in case of economic curbs being imposed collectively, such as by the organisation for economic co-operation and development (OECD) or the north atlantic treaty organisation (NATO).

Sanctions by the US

• Economic sanctions are fast becoming the policy tool of choice for the United States in the post-cold war world. 
• The United States now maintains economic sanctions against dozens of countries; indeed, sanctions are so popular that they are being introduced by many states and municipalities. 
• The critical thing is not just the frequency with which economic sanctions are used but their growing importance for U.S. foreign policy.

Sanctions measures include

• Embargoes – A trade embargo is a broad ban on trading with a country, though it can sometimes include exceptions for the supply of food and medicines on humanitarian grounds. Cuba, Iran and North Korea have long been subject to U.S. trade embargoes.
• Export controls – Export restrictions bar the supply of specified products, services and intellectual property to targeted countries. They often restrict sales of weapons, technology with military applications or, as currently for Russia, oil drilling technologies and equipment.
• Capital controls – Capital controls can restrict investment in targeted countries or industries, or broadly bar access to international capital markets for a country’s issuers.7
• Trade sanctions – Trade sanctions can include import controls for specific countries, regions or industries.
• Asset freezes or seizures – Assets within sanctioning jurisdictions can be seized or frozen, preventing their sale or withdrawal
• Travel restrictions – Officials and private citizens as well as immediate family members may be denied travel access to sanctioning jurisdictions.  

Impact on India

• Oil prices: 
  • Oil prices have hit their highest levels in almost a decade.
  • These sanctions further increase crude oil prices.
• Economic Growth: 
  • Growth is expected to be less than 8% in FY23
  • The Economic Survey had forecast 8-8.5% growth in FY23 at the end of January, days after the International Monetary Fund (IMF) had pegged India’s gross domestic product (GDP) growth for the year at 7.1%.
• CAD:
  • India’s CAD was 1.3% of GDP in the September quarter against a current account surplus of 0.9% in the trailing quarter.

Image Courtesy: ET 

Way Ahead

• The government has proposed capital expenditure of Rs 7.5 lakh crore in FY23 compared with Rs 6 lakh crore in the current fiscal year to support growth.
• Amid increased global and economic interdependence, they could prove to be detrimental for the targeted country.

Source: LM