Collapse of oil economies may affect India The continued slide in Brent crude prices augurs well for the Indian economy despite the temporary setback for stock markets and oil related stocks. The fall in the stock markets was due to a combination of fall in crude oil prices below the $50-mark as well as the possibility of Greece being taken out of the eurozone. How it is good for India: The fall in crude oil price is good for all users, including major importers like India, as it lowers their trade deficit and hence strengthens their currencies. With low oil price, the production cost will go down, and India will be competitive internationally. With this, exports will increase. Imports will be down and this will improve balance of payment situation. Overall it is good for economy. The steep fall in crude prices is defacto fiscal stimulus for India as oil accounts for 37 per cent of its imports. Lower oil prices will cut inflation, and will bring down our current account deficit. It will boost our growth prospects and overall it is good for India. Effects on exporting countries: For the oil exporters, this is bad news as it lowers their export earnings, and given that most countries are dependent on oil exports, their growth would suffer. Some analysts believe that the collapse of some oil economies could be a matter of concern for India. Concerns: The collapse of any economy will be a concern for India as it changes economic dynamics. Today the global economy is just about in a recovery mode and the collapse of any economy, be it Greece or any oil producing country would change the policy actions of central banks which will influence the flow of funds thus impacting our external balances. Hence while India may not be affected on the trade front but, it will definitely impact country’s balance of payments. Default in loans given to Russia and to shale gas developers in the U.S. could affect the global banking industry which could cause imbalances.
Posted on: Fri, 09 Jan 2015 17:34:01 +0000
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