From UPSC perspective, the following things are important :
Prelims level : NA
Mains level : Russia-Ukraine war, global implications , Food and energy cisis
- To be sure, the Ukraine-Russia conflict has thrown the energy markets into a crisis in several Global South nations. In addition, the supply cuts by edible-oil exporting countries, alongside the rise in fuel prices, have led to a surge in food prices, making food security a primary concern, especially for the vulnerable sections of society. In addition, China’s COVID-19 surge has dampened global economy, especially in BoB.
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How the South Asian neighbourhood is in flux?
- Sri Lanka and Pakistan: Sri Lanka and Pakistan are facing economic headwinds, with the former having gone through a full-blown economic collapse and the latter facing huge external debts, power shortages, and extreme inflation.
- Bangladesh: The IMF sanctioned a precautionary loan of US $4.7 billion to Bangladesh amidst the precarious macroeconomic situation in the country, with high inflation and volatility of the Bangladeshi Taka.
- Myanmar: A post-coup Myanmar sees a shutdown of businesses and a massive spike in unemployment.
- Nepal: Nepal, too, sees widening trade deficits and declining foreign exchange reserves.
How Russia-Ukraine war challenges Food security?
- Russia-Ukraine war and the resulting food crisis: Ukraine and Russia play a significant role in the global food supply chains, further affecting low- and middle-income countries and vulnerable populations already grappling with hunger in the post-pandemic world.
- Wheat suppliers: Since both countries exported more than one-third of the world’s wheat and barley, and about 70 percent of sunflower oil, governments around the world were severely hit as the war stopped exports of around 20 million tons of Ukrainian grain.
- Agricultural commodities exports to Asia have dried up: An estimated 6 million tons of agricultural commodities were exported monthly to Asia, Africa, and the Middle East. As of June 2022, this number had dried up to a fifth of its original value.
- Ripple effects on food prices and availability: According to the United Nations’ (UN) Food and Agriculture Organization (FAO), global food prices have risen by 20 percent. It further predicts a rise in the undernourished population to be between 7.6 to 13.1 million, because of the conflict situation and its ripple effects on food prices and availability.
Sri Lanka: A case of Food security crisis
- The economic meltdown in Sri Lanka wreaked havoc on the food security of the local population.
- For Sri Lanka, the sudden switch to organic farming in 2021 worsened its trade performance in the agricultural sector.
- The island nation had to import sugar, rice, and various other commodities, including intermediate goods in which the economy had had a previous surplus.
- By 2022, the tea industry, which was a major commodity of exchange, incurred losses of approximately US $425 million, further worsening the economy’s foreign exchange situation.
- Heavy on energy imports: The data analysis on energy imports shows that all the countries in Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation (BIMSTEC), especially India, Myanmar, and Bhutan, rely heavily on energy imports.
- Fuel dependency makes the region highly vulnerable to external shocks: The trade dependency on fuel is a major curse for the region, making it highly vulnerable to exogenous macroeconomic shocks. The Russia-Ukraine conflict underscores the importance of nations having self-reliance regarding energy.
- Absence of infrastructure and synchronisation in BIMSTEC Grid plan: Despite the BIMSTEC countries having developed a ‘Plan of Action for Energy Cooperation in BIMSTEC’ and also signed a MoU for the establishment of the BIMSTEC Grid Interconnection in August 2018, the absence of required infrastructure and adaptive power market, the lack of synchronisation of the grid system, the lack of financial policies, and other related issues have made progress in energy cooperation slow among the countries in the region.
Bangladesh: In a tough spot
- Unable to set in motion the transition to renewable energy, alongside heavy dependence on fuel imports, Bangladesh, especially, has been placed in a tough spot concerning energy security.
- The Russia-Ukraine conflict has added more fuel to this fire. With energy prices climbing upwards and subsidy bills increasing, the fiscal balances and current account deficits have been worrisome for Bangladesh’s economy.
- The government had to finally put in place some austerity measures. The domestic prices of diesel, kerosene, octane, and petrol were increased to achieve price parity with its neighbours such as India, China, and Nepal.
- Safeguard against food security crisis: It becomes imperative for regional groupings to set up safeguards against crises where their food security is affected by geopolitical events and domestic macroeconomic threats.
- Food Bank for BIMSTEC: The idea of a food bank for the BIMSTEC countries modelled on the Association of Southeast Nations (ASEAN) Food Bank is a good start as it will aid in stabilising prices.
- India urged to develop regional strategy and promoting millets: Recently, in November 2022, India hosted the second Agriculture Ministerial-level meeting of the BIMSTEC nations, where it urged the member countries to develop a regional strategy for transforming agriculture and promoting millets into the food systems.
- Millets have potential to ameliorate food insecurity: Promotion and intra-regional trade of food items such as millets, where these countries have surplus production, can help ameliorate food insecurity to a large extent.
- Self-reliance in energy: Overdependence on fuel will make the region more vulnerable and affect its financial stability. Therefore, developing a domestic energy market is critical for the region. This can be achieved by accelerating the green transition.
- For instance: FDI from Japanese firms has constantly seen more impacts and spillovers in the Indian economy. If Japanese firms’ economies of scale and their potential in developing different green energy technologies could be fully utilised, it would reduce the regional dependence on China, which is currently the dominant player in the domain of solar energy.
- Regional economies have huge potential to invest in research for green transition technologies and sustainable agriculture which can help them have self-reliant energy and food markets respectively. Led by India, the Bay of Bengal region can lead the way in innovations in renewable forms of energy such as solar and wind.
Q. The South Asian neighbourhood is in flux. Discuss the major challenges and suggest a way ahead.
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