Thanks to god, gold and oil, India's businesses and consumers may be in for somewhat better times than has been the case in recent months.
Rain gods have been kind, gloomy monsoon forecasts have proved off the mark so far, with rains just 5% short of normal. Oil and gold - two of India's biggest imports - have seen sharp price falls. Crude oil prices are down 15% in the past month and trading at half the price that prevailed in June last year.
Gold has plunged to a multi-year low. Most analysts expect these trends to continue. The implications of god, gold and oil being kind to India now and in the near future means the festive season - India's annual high point of consumerism - will likely see consumers feeling they can spend some serious money.
Businesses will both have healthy demand and be free of fear of interest rate hikes. And the government may find it easier to pump prime the economy, thanks to better
current account and fiscal situation.
Think basics: gold is cheap, cooking oil prices are down and likely good harvests means higher rural demand for cars, motorcycles, tractors, jewellery and FMCG products. Plus, the rare combination of near-normal rain and much lower import bill for oil and gold means the government and RBI need not lose sleep over fears of inflation. So, little pressure on raising rates.
Jyotinder Kaur, Principal Economist, HDFC Bank, said India was lucky that global prices of commodities, particularly energy, had softened. "This has provided a buffer to us and will help keep headline inflation below the nearterm target of 6% set by the RBI.
This will, needless to say, provide comfort to Governor Raghuram Rajan in his deliberations about the future course of monetary policy," she said.
Analysts also say the government can raise public investment to offset private sector capital spending blues and raise more money from disinvestment as blue-chip oil firms now command a better value.
The oil price fall will reduce the borrowings of refiners and cut ONGC's subsidy burden. "This, along with the policy reforms augurs well for the sector, and will help the government get good valuations if it goes ahead with divestment in these companies," said K Ravichandran, Senior Vice-President and Co-Head, Corporate Ratings, ICRA.
Source:economictimes.indiatimes.com
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