The flip side of falling crude

China which consumes 17 per cent of the world's oil.

The consistent fall in global crude prices to near $30 a barrel, an 18 per cent fall since the new year, along with the fall in commodity prices, is a double bonanza for the Indian economy. Whilst it has benefited the economy, there is a flip side that affects companies that export oil and oil products. But the benefits outweigh the disadvantages.

As one of the largest oil importers, second only to China which consumes 17 per cent of the world’s oil, falling crude prices is good news for India’s current account deficit (CAD), for inflation which is moderating because of the fall in petrol and diesel prices, and for controlling the fiscal deficit as oil subsidies are eliminated, though the government is paying the oil companies the backlog of subsidies only. According to reports, every $10-per-barrel fall in the crude price helps reduce retail inflation by 0.2 per cent, wholesale price inflation by 0.5 per cent, and the CAD by $9.2 billion. However, earning $60 billion annually as the world’s sixth-largest exporter of petroleum products, it is bad news for these exporting companies. On the currency front, too, companies that have a presence in emerging markets in Africa, for instance, have suffered losses as these countries depreciated their currencies.

Overall the impact of the unprecedented fall in crude and commodities prices has been peripheral, primarily at the macro level. At the ground level company results are tepid, profits are down and they have 30 per cent idle capacity. Retail demand is not picking up. One of the reasons could be food inflation. This has also curtailed the pricing power of companies and reduced their profitability.

( Source : deccan chronicle )
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