Skip to main content

Without oil price fall, India's GDP growth would be 6%, not 7.5%, argue World Bank, JP Morgan economists

By Our Representative
A recent World Bank analysis, even while predicting that India’s growth rate would be around 7.5 per cent by the end of the present financial year ending March 2016, believes that it is largely “oil-fueled.” Carried out by Frederico Gil Sander, senior economist, World Bank, it says, “The drastic decline in global crude oil prices since June 2014 clearly played an important role”.
“As a net oil importer, the halving of oil prices has been a bonanza for India. External vulnerabilities were greatly reduced as the lower oil import bill shrank the current account deficit despite anemic exports”, says Sander.
He adds, “Lower oil prices also helped contain prices of global commodities, and along with the Reserve Bank of India’s (RBI’s) prudent monetary policy led to a significant decline in inflation.”
Quoting an “interesting” piece, which also points towards this phenomenon, Sanders quotes economists of the top rating agency JP Morgan’s Sajjid Chinoy and Toshi Jain who “estimate that India benefited from a 2.1 percent of GDP terms-of-trade shock over the last four quarters, two-thirds of which have been spent, which implies a 1.3 percentage-point fillip to GDP growth in the previous four quarters.”
In an opinion piece in a prominent business daily, Chenoy argues, “What this suggests is that after netting out the oil impact, underlying growth may have been closer to six per cent, reflecting the export slowdown and rural stress.”
Answering the question, “Why does this matter?”, Chenoy insists, “Because this is a one-time 'growth' windfall, if oil prices stabilize… there will be no incremental 'growth' impact through progressively higher purchasing power or corporate margins.”
Chenoy’s believes, “In all the discussion about India's growth performance and prospects, the elephant in the room is barely discussed. Growth sceptics worry about a sluggish global economy and a struggling rural economy. Growth optimists point to the government's reform efforts and the impact these will eventually have on the ground.”
“What's surprising about this debate”, he says, is that nobody talks “about the most significant driver of growth in India over the last year: a massive, positive terms-of-trade shock in the form of lower oil prices that has boosted activity.”
Elaborating, he says, “India is a very large commodity importer, in general, and oil, in particular. So when oil prices collapse from $110 to $45, economic agents in India experience a large income windfall: resources that should have been transferred to the outside world are now retained by households, corporates and the government”, leading to GDP growth.
“To the extent that some of this income is consumed or invested rather than saved, it translates into higher economic activity and growth”, Chenoy says, going over to a complex exercise of explaining how this happened, and what would be the impact on the Indian economy in the near future.
Calling it an “uncomfortable reality”, the rating agency economist believes, few have seen that “growth has benefitted significantly – over a percentage point – because of the collapse in oil prices. That will soon go away, if prices stabilise. And other drivers of growth will need to quickly step up, if a slowdown is to be avoided.”

Comments

TRENDING

India's GDP down by 50%, not 23%, job loss 200 million not 122 million: Top economist

By Our Representative  One of India’s topmost economists has estimated that India’s Gross Domestic Product (GDP) decline was around 50%, and not 23%, as claimed by the Government of India’s top data body, National Statistical Organization (NSO). Prof Arun Kumar, who is Malcolm S Adiseshiah chair professor, Institute of Social Sciences, New Delhi, said this was delivering a web policy speech, organised by the Impact and Policy Research Institute (IMPRI), New Delhi.

Youngest of 16 activists jailed for sedition, Mahesh Raut 'fought' mining on tribal land

By Surabhi Agarwal, Sandeep Pandey* A compassionate human being, always popular among his friends and colleagues because of his friendly nature and human sensitivity, 33-year-old Mahesh Raut, champion of the democratic rights of the marginalised Adivasi people of Gadchiroli, Maharashtra, has been in prison for over two years now.

#StandWithStan: It's about Constitution, democracy and freedom of expression

By Fr Cedric Prakash SJ*  It is more than three weeks now: On the night of October 8, 2020, the 83-year-old Jesuit Fr Stan Swamy was taken into custody by the National Intelligence Agency (NIA) from his residence in Ranchi to an undisclosed destination. According to his colleagues, the NIA did not serve a warrant on Fr. Stan and that their behaviour was absolutely arrogant and rude.

Stan Swamy vs Arnab Goswami: Are activists fighting a losing battle? Whither justice?

By Fr Sunil Macwan SJ* It is time one raised pertinent questions over the courts denying bail to Fr Stan Swamy, who was arrested under the Unlawful Activities (Prevention) Act (UAPA), and granting it to Arnab Goswami, editor-in-chief of the Republic TV, arrested under the charge of abetting suicide of Avay Naik, who ended his life in 2018. It is travesty of justice that a human rights activist is not only denied bail but is also made to wait for weeks to hear a response to his legitimate request for a straw to drink water, while Arnab Goswami walks free.

India performs 'poorly' in Quality of Life Index, ranks 62nd out of 64 countries

Counterview Desk “Expat Insider”, which claims to be one of the world’s most extensive surveys about living and working abroad, in a survey of 20,259 participants from around the globe, has found that of the 64 destinations around the globe, has found that while Taiwan is the best destination for persons living outside their native country, closely by Vietnam and Portugal, India ranks 59th.

Human development index: India performs worse than G-20 developing countries

By Rajiv Shah A new book, “Sustainable Development in India: A Comparison with the G-20”, authored by Dr Keshab Chandra Mandal, has regretted that though India’s GDP has doubled over the last one decade, its human development indicators are worse than not just developed countries of the Group of 20 countries but also developing countries who its members.

Buddhist shrines massively destroyed by Brahmanical rulers in "pre-Islamic" era: Historian DN Jha's survey

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

Namaz in Mathura temple: Haridwar, Ayodhya monks seek Faisal Khan's release

By Our Representative As many as 23 members of the Hindu Voices for Peace (HVP), including the founder president of the well-known Haridwar-based Matri Sadan Ashram, Swami Shivananda Saraswati, and a one of its top monks, Brahmachari Aatmabodhanand, have expressed their “dismay” over the arrest of Khudai Khidmatdar chief Faisal Khan and three others on charges of “promoting enmity between religions” and “defiling a place of worship” after they offered namaz in Mathura’s Nand Baba temple premises on October 29.

Government of India 'refuses' to admit: 52% of bird species show declining trend

Finn's Weaver  By Our Representative The Government of India has been pushing out “misleading” data on the country’s drastic wildlife decline, says a well-researched report, pointing towards how top ministers are hiding data on biodiversity losses, even as obfuscating its own data. It quotes “State of India’s Birds Report 2020” to note that of the 261 out of 867 bird species for which long-term trends could be determined, 52% have declined since the year 2000, with 22% declining strongly.

Dalit, Adivasi protest in Jharkhand against 'illegal' transfer of land for development

By Rishit Neogi Displacement and eviction are not new terms. It is surprising that they are still continuing and have become a tool in the hands of state backed corporates to forcibly occupy lands in the name of development.