India’s economy is likely to experience some volatile shifting in the near future based on the behavior of commodities prices. Some economists are predicting that lower prices will have both positive and negative effects, but most say it is too early to tell which direction things will be heading.
Exports Recently Contracted By 24 Percent
China’s recent monetary crisis has not been helping India’s economy, causing exports to drop by 24 percent. The drop has been steady for the past ten months, and coupled with the drop in commodities pricing, this will likely have a negative effect on economic recovery.
India’s economic success is heavily tied to activity in other Asian countries, particularly China, and it is believed that if the slowdown continues, it will adversely affect economic recovery in the entire region.
There is reason to believe, however, that the drop in pricing will not have a huge long-term impact. Published reports conclude that India’s shift in focus back to infrastructure improvements, and investment in the private sector will help boost the economy, helping to offset any lost ground.
India Will Continue to Rely On China
Indian Finance Minister Arun Jaitley recently told an American audience that India has benefited from cheaper commodities prices, because of its status as a major importer, but it stands to be impacted by events in China because it is “very well integrated into the global economy.” The economic slowdown in China is a concern for all industrialized nations, as it affected worldwide growth.
India plans to take advantage of the “growing interdependence” between itself and China, hoping to emulate the Chinese for the benefit of both countries. It is believed that both countries can achieve greater success if they work together to improve shared business practices.
Cheaper Oil Might Save the Day
The drop in crude oil prices has been a significant boon to India’s economy, because the country must import over 70 percent of the crude oil it uses. Oil consumption alone accounts for about 30 percent of commodities expenses, and cheaper oil means a much lower expenditure. The money that is no longer needed for oil can be repurposed for other projects, as well as going towards reducing fuel subsidies.
Crude oil prices have dropped 42.6 percent over the past year, allowing the importing of commodities to drop 21.2 percent. This has also caused a significant decrease to the country’s trade deficit, which economists view as a positive.
Going forward, lower crude oil prices will help Indian companies increase operating margins because fuel and power expenditures will be lower. This is viewed as a positive as it will improve India’s financial standing in the world, and draw more attention from investors.
While China rides out its current economic volatility, the eyes of the world will look towards India as lower commodities prices make its economy more conducive to future growth and development.
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