It´s raining good news for the Indian economy. Credit Suisse has said that India will witness the fastest dollar nominal growth in 2015. And falling oil prices are proving to be a major windfall for the country. Knock-off effects from the fall are helping the Centre cut subsidies, pare inflation and handle the fiscal deficit. This would also be an opportune time for the RBI to cut interest rates, but more on that later.
The fall in oil prices is proving to be an interesting saga. That´s because geopolitics comes into play, and now it looks like a number of (seemingly unrelated) factors are combining to hammer down prices. OPEC has failed to slash production to prop up oil, because Saudi Arabia does not want arch-rival Iran to gain from any increase in prices, among other reasons. And of course, the US has a strong stick to beat Russia with, due to the shale weapon that it wields, as fracking fuels the American shale boom.
This would be an excellent opportunity for India to build up its strategic oil reserves. I am surprised that there has been hardly any mention on this front. Currently, the country has strategic reserves of 31 million tonnes of crude. That´s just not enough. India has an insatiable appetite for oil and it displaced Japan last year to become the third-largest crude importer. Now´s the time for us to fill up our tanks. Just for comparison, the US, despite having become a major oil producer, still has strategic reserves of around 717 million barrels.
On the coal block auction issue, I would like to congratulate the government for having moved speedily on the issue after the Supreme Court diktat. A few issues still remain… I will elaborate on them in a few articles that we are planning on this complex subject in the future.
Coming back to the buoyant economy and the ebullient stock market, now is the time for the government to offload its stakes in selected PSUs and gain from the high market valuations. On the block are (stakes in) ONGC, Coal India, Power Finance Corporation and Rural Electrification Corporation, among other public sector majors. The government should not miss the bus, as was the case with the previous dispensation. The PM has the mandate to deliver, and I am sure he will.
Since inflation seems to be firmly under control, now is the time for the RBI to seize the opportunity and cut interest rates. Though expectations are that the apex bank might get around to doing so only in February next year, I feel that with the economy on a firm uptick, it´s time to act.
Coming back to the current issue, the who´s who of the infrastructure industry have spoken to us on their outlook for next year. I am happy that their mood is gung-ho, and this would surely translate into some concrete action on the ground for all involved stakeholders.
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