The government has resumed the supply of commercial LPG. This is positive news for the economy as well as the energy sector. Since the conflict between the US and Iran, and blockade of the Hormuz had completely shattered the energy supply chains for India. Many energy-importing economies, including India were hit hard as the availability and prices of gas as well as petroleum products had become to volatile.
With a deal between the US and Iran, maritime traffic in the Strait of Hormuz is now normalizing benefiting India to huge extent. This is expected to result in gas supplies gradually restoring to the normalcy. So this decision is not only the first step toward the normalization of the energy market will improve the availability of essential fuel for industries, commercial establishments, and the service sector, thereby supporting production and business activities.
It will take time before the prices of commercial gas starts easing if global supply conditions improves. So it will be premature commenting on significnat drop in the prices of the gas. Because the war between the US and Iran has resulted into huge structual challeneges with destruction and damages to the capacity of gas plants in the Middle East. So the capacity constraints and long-term supply contracts already locked in will continues to exert pressure on the prices. So, the gas supply will improve gradually.
A huge portion of seaborne oil and gas trade passes through the Strait of Hormuz. If it remains free of conflicts and any blockade along with Iran supplying oil to the world, it is quite possible that the oil price may fall to around $70/barrel. However, this will also be dependent on production and supply from OPEC nations.
A decline in the oil prices will benefit India immensely. A lower import costs will narrow down the trade deficit. It will result in strengthening of forex exchange, lower pressure on rupee, fall in fuel price and moderating inflationary pressures in the economy. This will provide enough space to monetary policy and RBI may not have to increase the interest rates. At this point in time, lower interest rates are also crucial for growth. Lower rate of interest will help in accelerating the economic growth as the industry will be able to get cheap credit.
India is witnessing the effects of El-Nino and a weak Mansoon. This simply translates into lower agriculture production, weaker rural employment opportunities and lower farmers’ income. A weak monsoon on overall has adverse effects on evry aspect of rural lives from earnings to consumption. Demands for consumer goods, durable goods such as electronics and two wheelers as well as cements and fertilzers may fall. However, lower inflation would have a less negative impact on rural consumption. So, increased fuel supply, lower fuel prices along with low inflation are positive development for Indian economy grappling with a weak monsoon and a possible fall in consumption. In other words, if the prices of essential goods remain under control, the consumption wouldn’t decline drastically even if the income growth remains weak.
With a deal between the US and Iran, maritime traffic in the Strait of Hormuz is now normalizing benefiting India to huge extent. This is expected to result in gas supplies gradually restoring to the normalcy. So this decision is not only the first step toward the normalization of the energy market will improve the availability of essential fuel for industries, commercial establishments, and the service sector, thereby supporting production and business activities.
It will take time before the prices of commercial gas starts easing if global supply conditions improves. So it will be premature commenting on significnat drop in the prices of the gas. Because the war between the US and Iran has resulted into huge structual challeneges with destruction and damages to the capacity of gas plants in the Middle East. So the capacity constraints and long-term supply contracts already locked in will continues to exert pressure on the prices. So, the gas supply will improve gradually.
A huge portion of seaborne oil and gas trade passes through the Strait of Hormuz. If it remains free of conflicts and any blockade along with Iran supplying oil to the world, it is quite possible that the oil price may fall to around $70/barrel. However, this will also be dependent on production and supply from OPEC nations.
A decline in the oil prices will benefit India immensely. A lower import costs will narrow down the trade deficit. It will result in strengthening of forex exchange, lower pressure on rupee, fall in fuel price and moderating inflationary pressures in the economy. This will provide enough space to monetary policy and RBI may not have to increase the interest rates. At this point in time, lower interest rates are also crucial for growth. Lower rate of interest will help in accelerating the economic growth as the industry will be able to get cheap credit.
India is witnessing the effects of El-Nino and a weak Mansoon. This simply translates into lower agriculture production, weaker rural employment opportunities and lower farmers’ income. A weak monsoon on overall has adverse effects on evry aspect of rural lives from earnings to consumption. Demands for consumer goods, durable goods such as electronics and two wheelers as well as cements and fertilzers may fall. However, lower inflation would have a less negative impact on rural consumption. So, increased fuel supply, lower fuel prices along with low inflation are positive development for Indian economy grappling with a weak monsoon and a possible fall in consumption. In other words, if the prices of essential goods remain under control, the consumption wouldn’t decline drastically even if the income growth remains weak.
Rajeev Upadhyay
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