Govt breathes easy as crude, gold prices slide

Govt breathes easy as crude, gold prices slide

New Delhi: Softening crude and gold prices come as a huge but temporary relief for the government battling to repair the widening current account and fiscal deficits but economists say more sustained effort is needed to steer the economy out of troubled waters.
    For consumers, the slide in global crude oil prices could mean a further cut in petrol prices. Oil companies have already reduced prices twice in view of the global trend.
    A sell-off in commodities saw the prices of gold and crude sliding sharply. Brent crude hit a ninemonth low of $101 per barrel on Friday. The decline in prices of the country’s two biggest imports may have a sobering impact on public finances if the trend is sustained.
    “India is more vulnerable to global oil prices as it subsides oil, suppresses oil inflation and is one of the largest importers. The sharp decline in global oil prices should help the subsidy bill and the easing gold prices should help in efforts to trim the current account deficit,” said D K Joshi, chief economist at ratings agency Crisil. He also said the government’s efforts to rationalize domestic fuel prices would have a positive impact on the subsidy bill.
    Joshi said estimates show that oil prices in 2013-14 would be at least $5 a barrel less than in 2013-14 due to several factors such as the global demand slowdown and the US becoming self sufficient in energy.
    The government has said that it is committed to keep the fiscal deficit within the target of 4.8% of GDP in the current fiscal and efforts are underway to tame the problem of unwieldy subsidies.
    The current account deficit (CAD) widened to a record high of 6.7% of GDP in the December quarter to $32 billion due to a spurt in oil and gold imports ringing alarm bells for policymakers. The CAD is ameasure of the amount of net capital flows from abroad that an economy depends on, whether in the form of borrowings or investment.
    The government has taken several measures including an increase in the import duty of gold to tame the current account deficit. Finance minister P Chidambaram has said he expects the current deficit annual number for the 2012-13 fiscal year to be “more tolerable.”
    The UPA is also trying to attract foreign capital with Chidambaram leading the charge. The finance minister will leave for a one week two-nation tour to Canada and the USA on Sunday as he launches another bid to attract foreign investors. Chidambaram has already made a pitch with investors in Singapore, Hong Kong and Tokyo.
    The finance minister will take part in the annual spring meetings of the International Monetary Fund (IMF) and the World Bank (WB). He is also scheduled to attend the G-20 finance ministers’ and central bank governors’ meeting on the sidelines of IMF-WB gathering, and also hold bilateral talks with US treasury secretary Jack Lew. Efforts are also on to boost exports and expectations are that the government may unveil a package for exporters when it announces the foreign trade policy later this month.
    But there are several problems still hovering over the economy. Industrial growth is weak as investments stay on the sidelines while business confidence is yet to recover. Food inflation continues to be a problem despite some moderation in overall inflation while the rupee continues to remain volatile.

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