How will commodity prices affect India’s GDP growth in 2017, 2018?
The International Monetary Fund’s (IMF’s) latest World Economic Outlook has revised down its forecast of average crude oil prices this year, compared to its July estimates. Its non-fuel commodity price forecast, on the other hand, has been revised upwards. India is a big beneficiary of lower crude oil and commodity prices.
The chart shows the windfall gains that have accrued to selected countries on account of lower commodity prices in 2015 and 2016. IMF has estimated the windfall as an estimate of the change in disposable income arising from commodity price changes. In 2015, the fall in commodity prices led to windfall gains of 3.4% of India’s gross domestic product (GDP) and its real GDP growth was as high as 8% in 2015-16.
The chart shows that India has been one of the biggest beneficiaries of the fall in oil and commodity prices both in 2015 and 2016. This year and the next, however, it is projected to have losses of 0.43% of GDP due to relatively higher oil and commodity prices. Gains for 2017-18 are simple averages of annual incremental gains for 2017 and 2018. In its July 2017 World Economic Outlook update, IMF had projected a term-of-trade loss of 0.64% of GDP for 2017 and 2018 for India. The loss has now been revised lower.
However, IMF believes that growth in commodity importing countries will remain strong in the medium term. It says, “Growth is projected to remain high for the group of commodity-importing countries, which account for the lion’s share of global growth, with higher growth in India and other commodity importers more than offsetting a slowdown in China.”