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

Mallika Sarabhai releases speech she was 'not allowed' to give at NID Convocation on Feb 7

Counterview Desk
The National Institute of Design (NID) in Ahmedabad, a Ministry of Commerce and Industry body, landed itself in controversy following its decision to put off its 40th convocation ceremony, where noted danseuse Mallika Sarabhai was invited as chief guest. The ceremony was scheduled to be held on February 7.

Modi, Shah 'forget': Gandhi’s first Satyagraha was against citizenship law of South Africa

By Nachiketa Desai*
Hindu fanatic Nathuram Godse assassinated Mahatma Gandhi once on January 30, 1948 but his followers raising the war cry of ‘Jai Sriram’ are killing the Mahatma every day. In his home state of Gujarat, Gandhiji was killed a thousand times in 2002 when over 2,000 Muslims were butchered, their women raped, homes and shops plundered and set on fire and even unborn babies ripped out of the wombs of their mothers.

As corona virus 'travels' to rural areas, NGO begins training tribals, marginalised women

By Souparno Chatterjee*
The World Health Organization (WHO) has declared corona virus a pandemic. Originating from Wuhan in China, it has traversed the entire globe, almost, and claimed more than 16,000 lives already. That’s largely the urban population. In India, despite all the preparedness and war-like promptness to safeguard against the pandemic, several lives have been lost , and hundreds of individuals have tested positive.

Rani Laxmi Bai, Tatya Tope 'martyred' by East India Company, Scindia's forefathers

By Our Representative
In an email alert to Counterview, well-known political scientist Shamsul Islam has said that was “shameful for any political party in democratic India to keep children of Sindhias in their flock” given their role during the First War of Indian Independence (1857). In a direct commentary on Madhya Pradesh Congress leader Jyotiraditya Scindia moving over to BJP, Prof Islam has quote from a British gazetteer to prove his point.

COVID-19: Dalit rights bodies regret, no relief plan yet for SCs, STs, marginalized

By Our Representative
In a letter to Prime Minister Narendra Modi, the National Dalit Watch-National Campaign on Dalit Human Rights, endorsed* by several other Dalit rights organizations, have insisted, the Government of India should particular care of the scheduled castes and tribes, trans folks, persons with disabilities and the women and children from these communities, while fighting against COVID-19 pandemic.

Big 'danger' of NPR: A babu can tag anyone as doubtful citizen, Jharkhand meet told

' By Our Representative
People in large numbers from across Jharkhand gathered at the Raj Bhawan in Ranchi to demand that the Hemant Soren government reject National Population Register (NPR) and stop all NPR-related activities. The people’s organisations which participated in the dharna under the banner of the Jharkhand Janadhikar Mahasabha (JMM) resolved to intensify their struggle, insisting, NPR is not a Hindu-Muslim issue but is essentially anti-poor.

Gujarat govt plan to 'banish' Gandhian activist anti-democratic, unconstitutional

By Rohit Prajapati*
The current Central and Gujarat governments, and their bureaucracy, have been and are still unable to answer and address the concerns raised, with facts, figures, and constitutional provisions, regarding the terror of tourism in the name of the Statue of Unity and tourism projects surrounding it.

Coronavirus scare ‘pushing’ people from Northeast India into more hardship

By Rishiraj Sinha, Biswanath Sinha*
“No one is born hating another person because of the colour of his skin, or his background or his religion. People learn to hate, and if they can learn to hate, they can be taught to love, for love comes more naturally to the human heart than its opposite.” – Nelson Mandela
***

Haridwar Swamis lead Khudai Khidmatgar peace march in Delhi 'riot affected' areas

By Our Representative
A Khudai Kidmatgar team, which visited the riot-affected regions along with Swami Shivanand Saraswati and Swami Punyanand, has insisted that India's true heritage is the lesson of ‘vasudhaiv kutumbakam', and it is the responsibility of all to carry froward this legacy. Originally founded by Khan Abdul Ghaffar Khan in 1930, also known as Frontier Gandhi, Khudai Khidmatgar is claimed to have been revived by young Gandhian activist Faisal Khan in 2011.