A sharp fall in crude oil prices and crash-like situation in several other global commodity prices, mainly gold and other metals, have reversed the mood of gloom in India, said the Associated Chambers of Commerce and Industry of India (ASSOCHAM) in a press statement on Sunday
The situation in India, ASSOCHAM said as it is largely an import-driven economy, is different. Rather than riding on the commodity boom, its economic growth rides also on the bust. Peculiar and paradoxical it may sound, but it is exactly so.
The positives of the commodity softening will work on manifold. First, it will bring down drastically the country's imports bill which is largely driven by crude oil and gold. Against a mammoth USD 190 billion trade deficit in FY 13, it would not be more than USD 170 billion or so in FY 14. Crude oil prices are expected to stay soft at least for the next few months while gold imports would come down significantly.
The changing global situation coupled with already low demand in several industrial and consumer goods will bring down inflation to just about five per cent or may be even less making the Reserve Bank of India cut the policy interest rates rather significantly.
The spin-off will be revival in consumer demand and reduction in the cost of production for the corporates, which will in turn lead to higher earnings. Thus, the cyclical factors will turn positives. The impact on improved earnings will be seen from the second quarter of the current fiscal.
Gold has come off its high of plus Rs 32, 000 of November and finding it difficult to find a new support even at sub Rs 26,000 per ten grams. Most other metals like silver, steel and aluminum are trading low.
However, ASSOCHAM said on the reverse side, there could be some negative impact on the companies making these commodity driven products like steel and aluminium. As it is, the steel consumption had come down worldwide and price drop would make things worse. New investment may not come in these sectors , unless demand is driven back by low prices. The iron ore exports which have done rather badly so far will come under further pressure.
The international crude oil price of Indian Basket has breached USD 100 and is trading at about USD 97 per barrel. It had crossed USD 115 per barrel in February giving anxious moments to the oil companies and the government.