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

Savarkar 'criminally betrayed' Netaji and his INA by siding with the British rulers

By Shamsul Islam* RSS-BJP rulers of India have been trying to show off as great fans of Netaji. But Indians must know what role ideological parents of today's RSS/BJP played against Netaji and Indian National Army (INA). The Hindu Mahasabha and RSS which always had prominent lawyers on their rolls made no attempt to defend the INA accused at Red Fort trials.

Did Netaji turn blind eye to Japanese massacre while in Andaman during World War-II?

Dr Diwan Singh Kalepani museum off Chandigarh By Rajiv Shah  Did Netaji Subhas Chandra Bose ignore the massacre carried out by the Japanese army in Andaman and Nicobar islands during the Second World War? It would seem so, if one goes by the account of Mohinder Singh Dhillon, who authored a book in memory of his father, 'A Titan in the Andamans, Dr Diwan Singh Kalepani'. Dr Diwan Singh was tortured to death by the Japanese soldiers in the cellular jail in Andaman in 1944.

A golden goose, GoI bent on selling LIC 'for pittance' without consulting stakeholders

By Thomas Franco*  In spite of strong opposition from all sections of the society, the Finance Minister (FM) recently asked her Ministries to speed up Life Insurance Corporation (LIC) Initial Public Offer (IPO). Does she realise that this can lead to collapse of the economy over a period of time because LIC is a golden goose which is giving golden eggs regularly to the economy, development projects and providing social security to the majority of the marginalised people of this country.

Modi's Gujarat 'ignores' India's biggest donor of Azad Hind Fauj, Dhoraji's Habib Sheth

By Dr Hari Desai* One surely feels happy that the statue of Netaji Subhas Chandra Bose is being installed near the India Gate in New Delhi. Every Indian and even Netaji’s 79-year-old daughter Prof Anita Bose Pfaff feels happy about the statue at the most important area of the capital. In an interview with an Indian TV, Anita, who is a German citizen, mentions that she thinks if not Netaji’s only Mahatma Gandhi’s statue should have been there. She may be aware that there existed a plan to install life-sized statue of the Father of the Nation at that place.  Even after differences with Mahatma Gandhi and Sardar Patel which led Netaji to leave the Indian National Congress, Bose was the first person to call Mahtma Gandhi Father of the Nation on July 6,1944 in his Ragoon Radio broadcast, and sought Bapu’s blessings as the Supreme Commander of the Indian National Army (INA). Till 1968 there was statue of King George V at India Gate. It was removed and placed in the Coronation Park, New Del

Sweden-backed study: India won't achieve 2030 UN goals, officials can't recognise SDG

By Rajiv Shah  A Swedish Society for Nature Conservation (SSNC)-sponsored study, carried out by the advocacy group Consumer Unity & Trust Society (CUTS) India, seeking to analyse the United Nation's Sustainable Development Goal (SDG) No 12, Responsible Consumption and Production (RCP), has regretted, it is "very unlikely" India will achieve any of the targets of SDG 12 by 2030 "unless some serious measures are taken by the government to reverse the present trend."

Savarkar 'opposed' Bhagat Singh's, Netaji's dream of India, supported British war efforts

By Shamsul Islam* In a shocking development, the student wing of the RSS put the busts of martyrs Bhagat Singh and Subhash Chandra Bose with Savarkar's on one pedestal at the University of Delhi late in the night on August 20, 2019. Bhagat Singh sacrificed his life for a socialist-democratic-secular republic and Netaji raised Azad Hind Fauj (INA) consisting of people of all religions and regions for armed liberation of India.

Biodiversity bill 'undermines' tribal rights, ayurveda, India's federal structure

Counterview Desk  Demanding immediate and complete withdrawal of proposed Biodiversity Act Amendment Bill, 2021, a statement issued by the Coalition for Environmental Justice in India, consisting of tens of civil society organisations, activists and experts, has said that it is a “well calibrated and clear attempt to progressively undermine and destroy the sovereign rights and control that the people of India have over their biodiversity, bioresources and associated traditional knowledge.” Floated by the Bangaluru-based Environment Support Group, it adds, the proposed Act would undermine “a right that is particularly crucial for adivasis, Dalits, farmers, fishers, vaids, hakims, nomadic and de-notified tribes, and such other natural resource dependent peoples whose lives, livelihoods and socio-economic wellbeing are intricately linked to nature.” Text : The Union Ministry of Environment, Forests and Climate Change (MoEF&CC) has proposed comprehensive amendments to the Biological D

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Is it time to celebrate India's 'improved' sex ratio? Reasons to question NFHS data

By Aditi Chaudhary*  The recently published National Family Health Survey (NFHS) factsheet brought cheers amongst the public and the government. With Child Sex ratio (number of females per 1000 males in the age group 0 - 6 years) and overall sex ratio (the total number of females per 1000 males), both showing an improvement, NFHS-5 (2019-21) got applauded by all around.

Blunting Constitution? 'Secular' parties using communalism to compete with BJP

By Prem Singh*  Most spheres of Indian politics have been tainted by communalism. Looking at the current political scene of the country, it seems that just as there is a consensus on neoliberalism among the political and intellectual elite of India, similarly a consensus has been made on communal politics or political communalism.