India is reaping the rewards of cheap oil

India will outstrip China in economic growth this year, according to a new IMF report, due to a recipe of policy reforms, an increase in investment, and lower oil prices.

|
Altaf Qadri/AP/File
An Indian worker fills the fuel tank of a vehicle at a fuel station in New Delhi, India.

Low oil prices may not be good for energy producers, but they are good for just about everyone else, including entire national and regional economies. Yet a new report by the International Monetary Fund (IMF) says emerging economies are still experiencing weak growth – with the exception of India.

In fact, the IMF’s World Economic Outlook (WEO) for 2015, issued April 14, says that India will outstrip China in economic growth this year, due to a recipe of policy reforms, an increase in investment and lower oil prices. (Related: Rig Count Data Shows Gulf States Cranking Up Pressure On The U.S.)

The WEO forecast said India’s growth will increase from 7.2 percent in 2014 to 7.5 percent this year, then level off for at least a year at a 7.5 percent growth rate in 2016. The report said China’s growth, meanwhile, is likely to fall from 7.4 percent in 2014 to 6.8 percent this year and 6.3 percent in 2016.

The price of oil is a major factor in India’s growth, the IMF document said: It not only leaves money in consumers’ pockets for spending on other goods or for saving, it also tempers the country’s overall inflation rate, which ordinarily tends to rise and even spike during periods of growth.

For emerging countries in general, the IMF suggested structural reforms that include clearing impediments to the infrastructure of their power sector, improving conditions for labor and education and streamlining their product markets to improve both productivity and their competitive edge. (Related: The Real History Of Fracking)

This has already begun to happen in India since Narendra Modi became prime minister last May, the WEO said. “In India, the post-election recovery of confidence and lower oil prices offer an opportunity to pursue such structural reforms,” it concluded. The drop in oil prices began in late June 2014, a month after Modi took office.

India, though, is more of an exception than an exemplar of growth in emerging market economies. In other such states, weak banks and large debt are holding back growth.

 

“A number of complex forces are shaping the prospects around the world,” said Olivier Blanchard, the IMF’s chief economist. “Legacies of both the financial and the euro area crises – weak banks, and high levels of public, corporate and household debt – are still weighing on spending and growth in some countries. Low growth in turn makes [paying off debt] a slow process.”

This applies to India’s fellow emerging market economies such as Brazil, Mexico and Russia. The WEO dramatically reduced its forecast for economic growth in 2015 for all three, attributing their troubles to non-transparent political activity, unstable currency exchange rates and weak prices for their leading commodities. In all three cases, oil is a leading commodity. (Related: The Fatal Flaw In The Climate Change Debate)

Despite this grim news, the IMF forecasts economic growth globally this year at 3.5 percent, and 3.8 percent in 2016. This is due in part to 1.6 percent growth in the Eurozone because the European Central Bank plans to buy bonds issued by governments in the region to stimulate growth. Further, the WEO said, the US economy is expected to grow by 3.1 percent in both 2015 and 2016.

But the report added that these economies must take a large role in contributing to growth outside their borders. It concluded that this would be easier if both interest rates and oil prices were lower.

By Andy Tully Of Oilprice.com

More Top Reads From Oilprice.com:

Source: http://oilprice.com/Energy/Oil-Prices/India-Could-Be-The-Biggest-Winner-Of-Low-Oil-Prices.html

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to India is reaping the rewards of cheap oil
Read this article in
https://www.csmonitor.com/Environment/Energy-Voices/2015/0416/India-is-reaping-the-rewards-of-cheap-oil
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe