Page 11 - CII Artha Magazine 2022
P. 11

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
                                                                                           QUARTERLY JOURNAL OF ECONOMICS
 MAY 2022                                                                                               MAY 2022
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