Skip to content
Search

Latest Stories

Ukraine crisis could disrupt India's economic recovery

Ukraine crisis could disrupt India's economic recovery

INDIA is likely to rank among the emerging economies worst affected by the Russia-Ukraine crisis as a surge in global prices of commodities is set to upend spending plans and derail its pandemic recovery, analysts say.

If the conflict lasts, India, which imports close to 85 per cent of its oil needs, is likely to see its fiscal, trade and account deficits swelled by a surge in crude oil prices to their highest in more than a decade, which will also fuel inflation.

"The contagion from currently rising geopolitical tension is unlikely to remain limited to financial assets and warrants a change in our key macro forecasts for FY23," said Abheek Barua, chief economist at HDFC Bank.

February's budget was based on an average oil price of $75 (£56.97) to $80 (£60.77) a barrel for the fiscal year starting from April 1, but Brent briefly soared on Monday to nearly $140, its highest in more than a decade.

A senior government official said if oil prices averaged $100 (£75.96) a barrel in the fiscal year to March 2023, that could shave 90 basis points off growth, taking it below eight per cent, from a forecast range of eight per cent to 8.5 per cent.

In such a scenario, inflation is seen rising by 100 basis points and the current account deficit could widen by 120 basis points to 2.3 per cent to 2.4 per cent of GDP.

DBS Bank says every increase of $10 (£7.6) a barrel in the price of oil lifts India's consumer price index-based inflation by 20 to 25 basis points, widens the current account gap by 0.3 per cent of GDP, and poses a downside risk of 15 basis points to growth.

The oil price spike is also expected to pressure the government to lower fuel levies and reduce the burden on consumers. That, in turn, would dent revenues, narrowing the room for capital spending needed to boost growth.

Retail fuel prices could rise 10 per cent or more, starting from this week, as results flow in from elections in key states. To avoid voter backlash at the polls, state-run oil companies have not raised prices since November 4.

"Given the bunched-up increase in the offing, excise duty cuts might be undertaken, to ease pressure on purchasing power and incomes," said Radhika Rao, an economist with DBS Bank.

But every rupee cut from fuel levies shrinks revenue for the government's coffers by Rs 130 billion (£1.29 b) a year. Economists say India could lose as much as Rs 900 bn (£8.92 bn) in trying to lower pump prices.

And a recent battering of markets, which forced a rethink of plans for an $8-bn (£6.08 bn) IPO of state-run Life Insurance Corp by the end of March, is likely to further dent the government's financial position.

Ratings risks

On the plus side, the government could turn a profit by selling some of its vast grain stockpiles following a rise in global wheat prices that could boost exports of the grain from India.

That could defray expenses on its vast annual purchases of grain at prices above global levels in the effort to support farm incomes.

But India's fiscal deficit had widened to a record 9.3 per cent in the year that ended in March 2021, thanks to efforts to cushion the shock of the coronavirus pandemic and revive growth.

That meant the ratio of debt to GDP shot up to more than 90 per cent, for the worst among similarly-rated emerging markets.

Although India's ratings have held steady, agencies have warned of long-term challenges and the need to cut the debt-to-GDP ratio to more sustainable levels.

Government officials said the fiscal deficit could slip by 20 to 30 basis points from a target of 6.9 per cent of GDP in the current fiscal year ending in March if LIC was not listed by then.

"The ratings agencies were not very happy with the fiscal consolidation path undertaken by us in the budget. Further deterioration could concern them," said a second government official, who also spoke on condition of anonymity.

The government is reworking some key budget figures and the outcome of next year's spending plans could look very different from the budget outlined last month, he added.

(Reuters)

More For You

single-use vapes-iStock

Analysis by Material Focus estimates that 8.2 million vapes are discarded or littered each week in the UK—equivalent to 13 every second. (Representational image: iStock)

iStock

Shops told to clear single-use vapes before ban starts on June 1

SHOPS across the UK have until 1 June 2025 to sell off remaining stocks of single-use vapes before a nationwide ban comes into force.

The legislation, confirmed last year, follows a government consultation that showed strong support for restricting their sale and supply.

Keep ReadingShow less
Trump’s Promise: TikTok Deal Before April 5 to Avoid Ban

This is not the first time that TikTok has been under scrutiny in the United States

Getty

Trump promises TikTok deal before April 5 to prevent ban

As the clock ticks towards the April 5 deadline, the future of TikTok in the United States remains uncertain, with President Donald Trump promising that a deal to resolve the app's ongoing issues will be struck before the deadline. The central issue at hand is whether TikTok's parent company, ByteDance, will be forced to divest the popular social media platform or face a ban in the U.S.

In a statement made aboard Air Force One late on Sunday, Trump confirmed that there was "tremendous interest" from potential buyers looking to acquire TikTok. He expressed his desire for the platform to "remain alive" and emphasized that multiple buyers were keen on striking a deal, suggesting that a solution would be reached before the deadline.

Keep ReadingShow less
Primark-London-Getty

During his 15-year tenure, Marchant expanded Primark’s store network to more than 450 locations across 17 countries in Europe and the United States. (Photo: Reuters)

Primark chief Paul Marchant steps down after misconduct probe

PAUL MARCHANT, the head of fashion retailer Primark, has resigned with immediate effect after admitting to an "error of judgment" in his behaviour towards a woman in a social setting.

Associated British Foods (AB Foods), Primark's parent company, announced his resignation on Monday.

Keep ReadingShow less
Jaguar’s bold gamble: Can it woo young, wealthy drivers with a £123k EV?

Jaguar’s bold gamble: Can it woo young, wealthy drivers with a £123k EV?

JAGUAR’S ambition to seduce younger, richer drivers was on full display in Paris with a presentation of its newest prototype, the Type 00, which promises all-electric luxury... at a steep price.

The low-slung, muscular-looking concept car presented to European reporters last Friday (21) prefigures a production model expected mid-2026 at a base cost of €150,000 (£123,472.8).

Keep ReadingShow less
Starmer-Trump-Getty

Trump has suggested the possibility of a 'great' trade deal that could help the UK mitigate the impact of tariffs he has pledged to introduce. (Photo: Getty Images)

Starmer, Trump talk trade deal progress in 'productive' discussion

KEIR STARMER and Donald Trump spoke on Sunday about ongoing UK-US trade negotiations, with Downing Street describing the talks as "productive."

Since leaving the European Union, the UK has been working to secure a trade agreement with the United States. Successive British governments have pursued a deal, but it has remained elusive.

Keep ReadingShow less