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Ukraine Crisis Could Disrupt Economic Recovery, Say Experts


India’s economic growth could be impacted by the Ukraine crisis, say experts

India is likely to rank among the emerging economies worst affected by the Russia-Ukraine crisis as a surge in global prices of commodities is set to upend spending plans and derail its pandemic recovery, analysts say.

If the conflict lasts, India, which imports close to 85 per cent of its oil needs, is likely to see its fiscal, trade and account deficits swelled by a surge in crude oil prices to their highest in more than a decade, which will also fuel inflation.

“The contagion from currently rising geopolitical tension is unlikely to remain limited to financial assets and warrants a change in our key macro forecasts for 2022-23,” said Abheek Barua, chief economist at HDFC Bank.

February’s budget was based on an average oil price of $75 to $80 a barrel for the fiscal year starting from April 1, but Brent briefly soared on Monday to nearly $140, its highest in over a decade.

A senior government official said if oil prices averaged $100 a barrel in the fiscal year to March 2023, that could shave 90 basis points off growth, taking it below 8 per cent, from a forecast range of 8 per cent to 8.5 per cent.

In such a scenario, inflation is seen rising by 100 basis points and the current account deficit could widen by 120 basis points to 2.3 per cent to 2.4 per cent of GDP.

DBS Bank says every increase of $10 a barrel in the price of oil lifts India’s consumer price index-based inflation by 20 to 25 basis points, widens the current account gap by 0.3 per cent of GDP, and poses a downside risk of 15 basis points to growth.

The oil price spike is also expected to pressure the government to lower fuel levies and reduce the burden on consumers. That in turn would dent revenues, narrowing the room for capital spending needed to boost growth.

Retail fuel prices could rise 10 per cent or more, starting from this week, as results flow in from elections in key states. To avoid voter backlash at the polls, state-run oil companies have not raised prices since November 4.

“Given the bunched-up increase in the offing, excise duty cuts might be undertaken, to ease pressure on purchasing power and incomes,” said Radhika Rao, an economist with DBS Bank.

But every rupee cut from fuel levies shrinks revenue for the government’s coffers by 130 billion rupees ($1.7 billion) a year. Economists say India could lose as much as 900 billion rupees in trying to lower pump prices.

And a recent battering of markets, which forced a rethink of plans for an $8-billion initial public offer (IPO) of state-run Life Insurance Corporation (LIC) by the end of March, is likely to further dent the government’s financial position.

RATINGS RISK

On the plus side, the government could turn a profit by selling some of its vast grain stockpiles following a rise in global wheat prices that could boost exports of the grain from India.

That could defray expenses on its vast annual purchases of grain at prices above global levels in the effort to support farm incomes.

But India’s fiscal deficit had widened to a record 9.3 per cent in the year that ended in March 2021, thanks to efforts to cushion the shock of the coronavirus pandemic and revive growth.

That meant the ratio of debt to GDP shot up to more than 90 per cent, for the worst among similarly-rated emerging markets.

Although India’s ratings have held steady, agencies have warned of long-term challenges and the need to cut the debt-to-GDP ratio to more sustainable levels.

Government officials said the fiscal deficit could slip by 20 to 30 basis points from a target of 6.9 per cent of GDP in the current fiscal year ending in March if LIC was not listed by then.

“The ratings agencies were not very happy with the fiscal consolidation path undertaken by us in the budget. Further deterioration could concern them,” said a second government official, who also spoke on condition of anonymity.

The government is reworking some key budget figures and the outcome of next year’s spending plans could look very different from the budget outlined last month, he added.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)



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Categories
Delhi News

Top Headlines: Deficit pegged at 6.8%; LIC listing reads Zomato IPO menu


A study says that only about half of India’s population vaccinated for Covid-19 with the first dose is willing to take the second shot. More on that story in our top headlines this morning. likely to stay at budget estimate

The is likely to stay at the budget estimate (BE) of 6.8 per cent of gross domestic product (GDP) in 2021-22, according to a senior official, because tax collection, however robust, may not be able to narrow the gap.




The estimated by the Budget is Rs 15.07 trillion. Read more

Barely 60% willing to go for second Covid-19 jab: Report

A recent study based on primary research with 3,500 citizens conducted by Boston Consulting Group’s (BCG’s) Centre of Customer Insight (CCI) shows that only about half the population (54-62 per cent) who are vaccinated with the first dose, have high willingness to take the second dose. Read more

BCCI to rake in Rs 5,000 crore from two new IPL teams

Bid price for IPL’s media and digital rights expected to double to Rs 32,694 crore in 2023

It will be raining money for the Board of Control for Cricket in India (BCCI), the country’s apex cricketing body, as two new team franchises of the Indian Premier League (IPL) go under the hammer on Monday. The new owners will be declared in Dubai by the end of day. Read more

Govt aims big for IPO, inspired by Zomato

Taking a cue from Zomato’s stellar initial public offering (IPO), through which it garnered a valuation of Rs 1 trillion, the government has asked its advisors and valuers to ascertain if the Life Insurance Corporation of India (LIC) should be valued at Rs 10 trillion or more. Read more

Early bird earnings rise 24% to touch new high

India Inc’s September quarter (Q2) earnings season has gotten off to an encouraging start thanks to the large gains posted by metals and energy companies. This, however, masks the hit general manufacturers and consumer companies took on their margins as a result of higher input costs. Read more

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Govt’s fiscal deficit at 31.1% of Budget Estimate till Aug, an 18-year low


The Centre’s as a proportion of the Budget Estimates fell to an 18-year low of 31.1 per cent in the first five months of the current financial year.

This was despite a year-on-year spike in in August, after falling in the previous month.




In absolute terms as well, the gap between the Centre’s and receipts narrowed to Rs 4.7 trillion during April-August, 2021 from Rs 8.7 trillion in the corresponding period of the previous year. It was, in fact, lower than Rs 5.5 trillion in the corresponding pre-Covid period of 2019-20.

The decline in the deficit could be attributed to a 114 per cent rise in revenue receipts amid a cautious two per cent increase in total till August of the current financial year.

However, the pace of expansion of revenue receipts moderated to 114 per cent at the end of August from 194 per cent a month-ago as the base normalised with the progressive economic recovery last year as well as the inflows of the RBI’s surplus during August 2020, Aditi Nayar, chief economist at Icra, said.

“Encouragingly, both revenue and capital spending saw a healthy increase in August 2021, more than offsetting the contraction seen in July 2021,” she said.

Nevertheless, the Centre’s revenue expenditure recorded a mild two per cent growth in July-August 2021, which suggests that government final consumption expenditure may weigh upon the GDP growth in Q2 FY2022, while the robust 31 per cent expansion in capital expenditure in this two month period will support the growth in gross fixed capital formation.

Taxes yielded the government almost 60 per cent more revenues at Rs six trillion than even corresponding pre-Covid level of 2019-20.

“The healthy expansion in the union government’s gross tax revenues in the first half relative to the pre-Covid level augurs that the upturn will sustain in the second half as well, even though a normalising base may dampen the pace of growth going forward. We expect the GoI’s gross tax revenues to exceed the FY’22 BE by at least Rs two trillion,” Nayar said.

Besides, the transfer of surplus by the RBI to the Centre was around Rs 500 billion higher than budgeted.

Moreover, there could be modest inflows from the National Monetisation Pipeline (NMP). However, following the package announced by the government for the telecom sector, Nayar assessed the inflows from this sector into the non-tax revenues to be limited to Rs. 280 billion, trailing the budgeted Rs. 540 billion for FY’22.

The government had, meanwhile lifted the cap from the expenditure.

As such, expenditure for September which would be made available next month end is likely to show a high pace of growth. The expected rise in fertiliser subsidies and MNREGA allocations, the Centre’s total expenditure can exceed the BE of Rs 27.9 trillion for the current financial year.

Even then, the Centre’s is likely to be lower than budgeted, depending on the disinvestment receipts. Disinvestment has yielded just Rs 12,000 crore against the target of Rs 1.05 trillion. In this respect, LIC IPO could fill much of the gap. Another Rs 15,000-20,000 crore could come from Air India disinvestment, which is the process.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

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We are a group of best insurance advisors in Delhi. We are experts in LIC and have received number of awards.
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