Water, oil paint a different picture of the economy
2 min read.Updated: 10 Sep 2019, 10:52 PM ISTLeroy Leo
Lack of private investments over the past few years, subdued demand and trade tensions and large imports of electronics from China are hurting the Indian economy
Mahindra Group chairman Anand Mahindra tweeted Tuesday on how a surplus monsoon and low crude oil prices could take the economy back to a high growth path. Mint decodes his optimism to explore the tailwinds as well as the headwinds facing the economy.
What’s keeping crude prices low?
In August, the average price of the Indian crude oil basket was $59.35 per barrel. This is lower than the $71 per barrel price in April, but very marginally higher than January’s $59.27. Crude prices, despite the best efforts of certain members of oil cartel, Opec, have remained benign. This is due to the weakening growth forecast for most economies of the world amid a global shift in automobiles and fossil fuel-based power towards renewables like electric, solar and wind. The US, which used to be a net crude importer, has been pumping oil and is now also exporting. This has kept a lid on crude oil prices.
Anand Mahindra @anandmahindra: “I try to make it a habit every morning to look for silver linings & +ve news.This shows how dramatically the monsoon deficit has been wiped out & is now solidly in surplus. This, plus relatively low oil prices, could give our economy the push it needs to move back to a higher gear."
How has the progress of the monsoon been?
Monsoon rainfall, after starting slow, has more than made up the deficit in the last two months. From a deficit of 35% at the end of June, rains across India are now 3% above normal, which is something to cheer about. The nature’s fury has led to floods in agriculturally important states like Punjab, Maharashtra, Tamil Nadu, Kerala and Andhra Pradesh. This could affect the sowing of crops. The spatial and temporal distribution has remained uneven, with states such as Haryana, Uttar Pradesh, Bihar, Jharkhand and West Bengal facing deficient rainfall, according to the India Meteorological Department.
How is food production likely to be impacted?
Sowing of kharif crops is down including rice’s. A surplus monsoon will give a brighter picture for production if torrential rains have not hit cultivation.
How could the two benefit the economy?
Mahindra’s comments are significant as his tractors business depends on rural demand, which in turn depends on the monsoon. Mahindra and Mahindra’s domestic tractor sales were down 15% in August. A healthy monsoon will lead to good crop production, benefiting farmers. This directly helps consumer companies and makers of paint and cement. Similarly, low crude oil prices will save the country precious foreign exchange, and help farmers and companies control their energy spend.
Are low oil prices and good rains enough?
Lack of private investments over the past few years, subdued demand and trade tensions and large imports of electronics from China are hurting the Indian economy. Government spending on unproductive social welfare schemes continue to be high. India’s banking and NBFC sector is still reeling under high NPAs. Even as the government reversed some of its unpopular tax measures, sentiment has not revived. Important sectors like auto and energy are undergoing structural changes, hurting jobs and growth.