Page 10 - CII Artha Magazine 2022
P. 10

Domestic Trends

        Resurrecting                                                                                                           2.  Impact on Current            10  8.7  Imports from Russia as % of India's Total Imports  high forex reserves

                                                                                                                                                                                                                    should allow RBI to
                                                                                                                                 Account Deficit (CAD)
                                                                                                                                                                                                                    intervene in the forex
                                                                                                                                 Though our oil import
                                                                                                                                                                                                                    market and keep the
                                                                                                                                 volumes do negatively to
                                                                                                                                                                                                                    rupee fairly stable. The RBI
                                                                                                                                 increases in international
        Growth Amidst                                                                                                            oil prices, but they are still   8 6 4 2 0  3.9  3.6 Stones  2.7  2.6 Vegetbale oil  2.2  1.5  1.3 Aluminium  1.2 Iron & Steel  0.9  has already done so
                                                                                                                                                                                                                    successfully since March
                                                                                                                                 inelastic in the short run.
                                                                                                                                                                                                                    2022. To be sure, India’s
                                                                                                                                 On the other hand, our oil
                                                                                                                                                                                                                    foreign exchange reserves
                                                                                                                                 import values very closely
                                                                                                                                                                                                                    have risen significantly in
                                                                                                                                                                            Pearl, Precs, Semiprecs
                                                                                                                                                                                         Petroleum products
                                                                                                                                                                                             Petroleum: Crude
                                                                                                                                                                                 Inorganic Chemicals
                                                                                                                                 follow changes in the
                                                                                                                                                                                                                    the last two years to
        Challenges                                                                                                               international crude oil             Fertilizers Manufactured  Coal, Coke & Briquittes  Source: Ministry of Commerce & CII Research Aluminium, Products of  Plastic Raw Materials  touch a record high of
                                                                                                                                 prices. Thus, as brent prices
                                                                                                                                                                                                                    US$641 billion in August
                                                                                                                                 rise, India's oil import bill
                                                                                                                                                                                                                    2021. It continued to
                                                                                                                                 significantly jumps up.
                                                                                                                                                                                                                    remain above US$600
                                                                                                                                 Fortunately, one-third of
                                                                                                                                                                                                                    US$598 billion in April
                                                                                                                                 India's oil imports are                                                            billion, before declining to
                                                                                                                                 re-exported after refining     As the world’s third largest   India’s growth prospects.   2022 given the global
                                                                                                                                 and other value addition. It   importer of oil, India relies   CII Research estimates   headwinds. These are
                                                                                                                                 mirrors the path of India’s   on other countries for     show that a US$10/barrel   substantial to cover our
                                                                                                                                 oil imports: thus, mitigating   more than 80 per cent of   rise in brent oil prices can   import bill and also
                                                                                                                                 about one third of India's    its crude oil requirements.   bring down GDP growth by   manage our exchange rate.
        A   fter witnessing a      Impact of                  1.  Impact on Inflation       on the headline inflation in         crude oil trade deficit.      In 2020-21, India imported   around 40 basis points.     Looking forward, CII
                                                                                            the months to come,
            tumultuous period
                                                                                                                                                               petroleum crude worth
        which saw the economy      Russia-Ukraine               Brent crude oil crossed     through the imported                 CII Research estimates        US$944.0 million from      Going forward, oil prices   expects growth to come
                                                                                                                                                                                                                    in a range of 7.4-8.2 per
                                                                the critical threshold of
                                                                                                                                 show that a US$10/barrel
                                                                                                                                                                                          are likely to moderate in
        facing pandemic induced                                 US$100 per barrel mark      inflation channel.                   increase will lead to an      Russia, which contributed a   FY23, as the conflict nears   cent in the current fiscal
        economy is expected to post  Stand-off on               on 24  February for the     CII Research estimates               additional US$11.58 billion   share of 1.6 per cent in the   resolution. At the present   from an expected 8.9 per
        contraction, the Indian
                                                                                                                                                               country’s total petroleum
                                                                                                                                                                                                                    cent in the previous fiscal.
                                                                                                                                 merchandise trade deficit,
                                                                first time since 2014 and is
                                                                                            show that a US$10/barrel
        real GDP is expected to rise  the Indian                currently hovering around   increase at US$100/barrel            which roughly translates to     The other commodities    juncture, it is critical to   It is pertinent to add here
                                                                                                                                                               crude imports.
        an impressive recovery as the
                                                                                                                                                                                          nurture the incipient signs
                                                                                                                                                                                                                    that if the global crude oil
                                                                                                                                 a 37 basis points rise in
                                                                those levels only.
                                                                                            will have a total (direct +
                                                                                                                                                                                          of growth recovery. But
        However, as the horizon was  Economy                    CII Research analysis       indirect) impact of around           India’s CAD/GDP ratio.        imported from Russia in    certainly, the Russia-Ukraine   continues to remain
        by 8.9 per cent in 2021-22.
                                                                                                                                                                                                                    above US$100/barrel for
                                                                                            30 basis points on overall
                                                                                                                                                                                          crisis has made things
                                                                                                                                                               2020-21 include petroleum
        brightening, the ongoing                                shows that there exists a   CPI inflation.                       India recorded a              products, precious stones   tougher for India on the   larger part of the year,
                                                                                                                                 CAD/GDP ratio of 1.2 per
                                                                significant pass-through of
        Eastern European conflict and   The Russia-Ukraine border   high global crude prices on     With CPI inflation having    cent in April-December        and precious metals,       economic front.           growth will come
        a resurgence of COVID-19   stand-off, escalated into a   retail pump prices (except   breached the RBI’s upper           2021 with Q3 numbers          petroleum products, coal,     The conflict has also   towards the lower end of
        infections in some major   full-blown conflict on 24    during few events such as   target range since January           standing at 2.7 per cent.     fertilizers, vegetable oils,   affected the rupee, which   this range and if some
                                                                                                                                                                                                                    moderation happens, then
        economies have dampened    February with Russian        elections), which in turn is   2022, the rising oil prices       The recent rise in oil price   amongst others.           has been depreciating.    we can expect growth
        the domestic recovery      military forces making       reflected in the fuel       have exacerbated the                 is thus likely to push up   4.  Challenging Times and    However, India’s record   around 8.2 per cent.
                                   substantial advancement into
        impulses through elevated   Ukraine. This event is      component of both CPI &     upside risks. In lieu of this,       CAD close to 2 percent of     Tough Decisions Lie Ahead
        commodity prices and global   expected to have          WPI inflation. This is      RBI hiked the repo rate by           GDP for FY22. This is a
        spill over channels. India, too,   ramifications on growth &   expected to pose a   a steep 40 bps in an                 significant rise from a 0.9     Rising oil prices, capital
        has borne some impact from   other key macro indicators   considerable upward risk   off-cycle meeting.                  per cent current account      flight and rupee
                                                                                                                                                               depreciation can present a
        the uncertainties on the   across the global economies,                                                                  surplus in FY21.              triple burden for India.
        global horizon.  A detailed   which had just started to                                                                3.  India’s imports from Russia   These will push up
        analysis of the impact of the   slowly inch towards normalcy       Trend in Brent Prices and Oil Imports                                               domestic inflation and
        Russia-Ukraine stand-off on   after subsequent deadly                                                                    India shares a special and    current account deficit.
        the Indian economy is      waves of the pandemic.         300.00                                                         privileged strategic          In case the government
                                                                                                                                 partnership with Russia,
        captured below.                                           200.00                                                         however, both Russia and      decides to protect the
                                   In the subsequent paragraphs,   150.00                                                        Ukraine are not major         consumer from high oil
                                   the impact of the ongoing     % change from last year  100.00                                                               prices by reducing taxes,
         INCREASING                geopolitical tensions on the    50.00                                                         trading partners of India.    the fiscal deficit would go
         GEOPOLITICAL              key macroeconomic               0.00                                                          The ongoing                   up and complicate the
         TENSIONS HAVE             indicators of the Indian                                                                      Russia-Ukraine crisis is      fiscal consolidation plan of
                                                                                                                                 expected to have a
         EXACERBATED RISKS         economy has been analysed:          Apr-14  Jul-14  Oct-14  Jan-15  Apr-15  Jul-15  Oct-15  Jan-16  Apr-16  Jul-16  Oct-16  Jan-17  Apr-17  Jul-17  Oct-17  Jan-18  Apr-18  Jul-18  Oct-18  Jan-19  Apr-19  Jul-19  Oct-19  Jan-20  Apr-20  Jul-20  Oct-20  Jan-21  Apr-21  Jul-21  Oct-21  Jan-22  negligible impact on India’s   bringing the deficit down
         FOR INDIA                                                                                                               foreign trade, especially     to 4.5 per cent by 2025-26.
                                                                     oil imports value ($ billions)  brent $/barrel  oil imports volume (million barrels)      This will make
                                                                                                                                 when it comes to import
                                                                       Source:  Ministry of Commerce & Energy Information Administration (EIA)  of commodities like   growth-inflation trade off
                                                                                                                                 petroleum crude.              tougher and can constrain
        10   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  11
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