So, the India-Russia ties are back in the limelight again. Positioning Russia as a reliable energy supplier to Asia, President Vladimir Putin is keen to export liquefied natural gas (LNG) to India and involve ONGC in oil and gas hunt in the Arctic as he looks to deepen energy ties with India as a counter to US sanctions - he says cost of selling natural gas to India through a cross-country pipeline was much higher than shipping it in its liquid form (LNG).
While citing involvement of state-owned Oil and Natural Gas Corp (ONGC) in Sakhalin-1 oil and gas project in Far East Russia, Moscow is now interested in attracting new investments and technologies, including that from India. the assurance is also there that India will start receiving LNG shipments as early as in 2017, or, in case the deadlines are shifted, by all means no later than in 2021
REALITY: Historically, Russia has exported most of its hydrocarbons to the West. However, as of now, European consumption is increasing too slowly, while political, regulatory and transit risks are on the rise. Side by side, a number of Asian economies are growing rapidly. Thus, "we are naturally interested in diversifying the destinations of our energy deliveries…. We expect to secure ourselves a role of a reliable energy supplier to the Asian markets," accordingly. OVL and Russia's biggest oil company Rosneft had already (in May, 2014) signed a MoU for cooperation in the Artic shelf. Gazpromneft has also expressed the intention in networking with Indian oil and gas companies with a view to implementing Arctic projects.
It goes without saying that all is not well with the oil sector. The crude oil price that has nosedived from the highs of $ 110 per barrel in June 2014 is expected to pump in US$ 1.4 trillion into the Indian economy. Around June 2014, India was importing crude at over $ 110 per barrel. Today, the prices of brent crude stand around $ 65. This dip in prices, undoubtedly, will benefit the Indian economy.
Though the official prediction is there that a huge growth in polyester fabric will be there in the near future, yet in a fresh setback industrial production saw the sharpest contraction in three years of 4.2 per cent in October, 2014, though retail inflation dipped to 4.3 per cent, putting pressure on the Reserve Bank of India to cut rate to boost growth. Factory output as (measured by Index of Industrial Production (IIP)) declined due to contraction in manufacturing, capital goods and consumer items. Rightly, it not only reflects slowdown in investments but also the deep-rooted slackness in consumer demand which requires bringing down the interest rates urgently.
ADVERSE BALANCE OF TRADE: India's adverse balance of trade position has been a matter of concern. To what extent there is an increase in trade by diversifying to markets in Africa and in Latin America, as also in the ASEAN region, is a point to see. Better use of free trade agreements is a must in as much as India has been sharing only 1.7 per cent of all exports that took place in the international trade, which, in turn, places India in the 19th place. Obviously, considering the potentialities and the resource base, 1.7 per cent should be pepped up to 2 percent at the earliest!
Again, the current account deficit that widened to $10.1 billion or 2.1 per cent of the gross domestic product for the September 2014 quarter as against 1.2 per cent in the year-ago period due to higher trade deficit, is also a point that calls for corrective measures. The current account deficit (CAD) is the difference between inflows and outflows of foreign currencies and this increase in CAD was primarily on account of higher trade deficit contributed by both a deceleration in export growth and increase in imports.
India has to grow despite global uncertainties. The reading is not incorrect, rather very practical. The Indian economy is expected to pick up pace in 2015 and grow in the range of 5 to 6 per cent, helped by strong domestic demand, as per assessment of rating agency Moody's.
"India will have stronger GDP growth in 2015, which we forecast at 5-6 per cent, up from around 5 per cent in 2014," Moody's said in a report titled ~ 2015 Outlook-Global Credit Conditions. The economy, accordingly, has benefited from a strong domestic demand base and diversified export markets that give protection from the effects of a slowing Chinese economy and muted growth in the Eurozone and Japan.
Singaporean lender DBS has also revised down its FY15 GDP growth forecast for India on slower investment and manufacturing, but said the country is entering a 'sweet spot' over the next two or three years to lift the potential growth rate back to 7 per cent. According to the global financial services major, while the recovery process is proceeding, there has been slower progress in terms of investments and manufacturing in the first half of the current fiscal. Slower investment and manufacturing is expected to impact second half performance as well, which "accompanied by lower government spending and weaker net exports, put our FY15 and FY16 forecast at risk," according to DBS research note.
LIKELY CUT IN INTERET RATES: With the oil prices coming down, commodity prices low and food prices under a bit control, the possibility of interest rates cut in the near future is a strong possibility. The government needs to pursue structural reforms vigorously if India were to achieve and sustain growth levels between 7 and 8 per cent.
The government has to pursue policies that will entail stability, promote infrastructure development and ensure social security, which, in turn, could help get the economy up to a long-term growth rate of seven-to-eight per cent. As per recent assessments a seven-to-eight per cent gross domestic product (GDP) growth per annum will propel the $2 trillion Indian economy to assume a size of nearly $4 trillion within the next 10 to 12 years. The current expectation is that if the rupee strengthens India may end up getting closer to $5 trillion economy.
State-owned banks are likely to continue to raise funds through additional Tier-I capital to meet the Basel III norms even as the government plans to pare its holdings in such financial institutions, says a report. The government had announced its plans to bring down its stakes in 27 public sector banks (PSBs) to 52 per cent by 2019 to enable them to raise capital from the markets. Banking sector has to come up vigorously to bolster the economy. Bangladesh is a good example on this score, among others.
It is good to note that the RBI, responding to demand from the industry, will come out with the guidelines soon for refinance of existing projects,. New projects could avail the scope for refinance every five years till the economic life of the projects.
Some recent steps catch attention - the government has decided to ban imports of machinery that is more than five years old, a move which would help in increasing competitiveness of domestic manufacturers. According to the Commerce and Industry Minister, "The government has decided not to allow import of machinery more than five years old unless a different maximum age is specified by the department of commerce in consultation with concerned ministry/department and National Manufacturing Competitive Council (NMCC. Promotion of domestic capital goods industry is very urgent. The crucial need is also there to review import policy of used/second hand capital goods and machineries and their impact on the domestic capital goods industry."
Financial inclusion has still to travel miles and miles more to see the smiles. Incidence of regional imbalances has to be done away with over time. The agriculture sector still calls for pepping up planned growth to accelerate the process of rural development.
The writer, is a noted management economist and an international commentator on business and economy.
m.bibhas@gmail.com
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