BackIndia may report current account surplus on declining oil: Jayant Sinha
Sinha, minister of state for finance, says the government is trying to capitalize on falling oil prices to boost infrastructure investment in the coming budget
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New Delhi: With crude oil prices falling sharply, India may report a current account surplus very soon, minister of state for finance Jayant Sinha said on Sunday.
“The International Monetary Fund (IMF) has said the sharp drop in oil prices will drive global economic growth up between 0.5 to one percentage points, which is extraordinary. So it is a very excellent and beneficial environment for India because we are such a large oil importer. From a CAD (current account deficit) perspective, it is improving our situation dramatically. In my view, we might run a current account surplus very soon, given the way the oil prices have collapsed," Sinha said.
The Indian basket of international crude oil prices stood at $45.14 per barrel on 22 January.
Speaking at an event jointly organized by Observer Research Foundation (ORF) and Network 18, Sinha said the government is also trying to capitalize on the savings made from declining oil prices to boost public investment in infrastructure in its next budget to be presented on 28 February.
“We are thinking through all of that very carefully. Public investment has fallen from 2% of GDP (gross domestic product) to 1% of GDP. It is time for us to get public investment and, certainly, that is what we are thinking to do in the budget," he added.
Yes Bank Ltd, in a research note earlier this month, said the halving of oil prices in the last six months is likely to bring huge relief to India’s current account balance.
“Based on current trends, we expect India’s current account balance to turn positive for Q4 (January–March) FY15. A sharp decline in the oil import bill, along with a seasonal improvement in export performance, is likely to shrink India’s trade deficit to $23 billion in Q4 FY15 from an expected $41.3 billion in Q3 (October-December) FY15, translating into a current account surplus of $5.5 billion (~ 1% of GDP)," it added.
India last saw a current account surplus in the fourth quarter of 2007-08 at $4.2 billion (1.6% of GDP).
India’s CAD expanded to 2.1% of GDP in the July-September quarter from 1.7% of GDP in the April-June quarter of 2014-15. The country’s crude oil imports declined 4.7% to $116.5 billion during April-December period.
Sunjay Joshi, director of ORF, said the sharp fall in oil prices provides a bonanza to developing countries. “Around $1.3 trillion is moving from developed to developing countries due to the fall in oil prices. This also provides a golden opportunity for developing countries to diversify into new forms of energy," he added.
On opening up the retail sector, including e-commerce, to foreign direct investment (FDI), Sinha said his government has been absolutely clear and transparent in its view on FDI in retail.
“When it comes to retail, we will take our time, we will make sure there is sufficient time for adjustment and millions of shopkeepers are able to deal with such changes. We, as a party, have said we are not in favour of FDI in retail because it is something that impacts millions and millions of people in India. We have said as far as law of the land is concerned, 51% FDI is allowed, and it is a state’s decision. We have to create time and space for these kinds of adjustments. When the US automotive sector was going through its struggles with Japanese imports, the Americans applied quantitative restrictions on Japan. So, for every economy around the world, adjustment takes time," he added.
Economist and Columbia University professor Jagdish Bhagwati earlier this month had said he is confident that the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi will open up the retail sector for FDI during its five-year tenure.
Bhagwati, who has praised the Gujarat model of economic development when Modi was the state’s chief minister, said now that Modi has got a wider constituency beyond its traditional trader base, he may be able to move on this front.
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