Boost to Indian economy from falling oil prices 'fading': DBS

The benefits to the Indian economy from fall in crude oil prices will be "limited" this year and domestic reforms and developments will gain focus, a report said.

PTI| Updated: Jan 28, 2016, 23:49 PM IST
Boost to Indian economy from falling oil prices 'fading': DBS

Mumbai: The benefits to the Indian economy from fall in crude oil prices will be "limited" this year and domestic reforms and developments will gain focus, a report said.

"Low crude prices have been of great help to a net oil importer like India. Brent prices (INR terms) are down 70 percent from mid-2014 levels," global financial services major DBS noted in the report, titled 'India: Fading boost from low oil price'.

"While the economy benefited significantly from the first leg of the oil price down move, the incremental boost to the economy will be limited this year," it said, adding that "as the tide runs out, underlying fundamentals and policy decisions will be back in focus".

The report said the government's pro-growth policy and the RBI's role in providing macro-stability has provided a favourable backdrop for the economy over the past two years.

"The drop in global crude prices was an unexpected windfall and helped to magnify improvements in the macroeconomic variables," it added.

Noting that the incremental impact of falling oil prices is fading, the report said that while the fall has halved the oil import bill, exports have also fared poorly, down 18 percent year-on-year so far this fiscal year.

"The higher weight of commodities in India's export basket has hurt earnings in recent months. On the demand side, shipments to oil-producing economies have taken a hit," DBS said.

As per the report, a favourable external environment had magnified the post-election optimism in domestic financial markets since mid-2014.

"However, as the boost from these factors wanes, local developments will gain in importance," it said.

While expecting a GDP growth of 7.4 percent for the current fiscal and 7.8 percent for the next year, DBS said the recovery has been uneven, with the "private sector still to participate in the growth upturn".

"Reforms have been under way, with executive decisions proving to be less of a challenge than legislative ones," the report said.

"It is imperative that progress continues, if India is to fare better than its peers in face of falling risk-appetite on the part of global investors," it added.