by admin | May 25, 2021 | Economy, News, Opinions
By Taponeel Mukherjee,
Higher oil prices, the consequent inflationary pressures and a weaker rupee have dominated recent news headlines. While short-term measures to deal with these macro-economic trends are essential, it is also necessary to look at the long-term structural changes required to bring about stability in the Indian economy and reduce exposure to the vagaries of macro-economic trends.
Environmental concerns alone do not drive India’s renewable energy push today: Economic and financial compulsions are even more critical. Policies have helped expand the sector, but figures such as an expected $105 billion crude oil import bill for the country for the financial year 2018-2019 (according to the Oil Ministry) give us an idea of the urgent need to further reduce our dependence on imported fossil fuel and find alternative sources of energy.
For “energy independence”, renewable energy is the elixir that the country needs and it will mean addressing more significant policy issues and creating a policy framework that supports “energy independence”, factoring in a multitude of elements.
First, the proposed 70 per cent duty on imported solar cells and modules merit re-examination. While this is needed to encourage domestic solar cell manufacturers, such high import duties will also slow down solar energy expansion.
The critical question is: Will the economic gains from the proposed duty be more significant than the benefits of a vibrant and growing solar sector using cheaper imported (read Chinese) solar products?
Critical evaluation of such questions will help frame coherent policies across the energy spectrum. Weighing competitive advantages of one policy versus another to create an overall framework that is consistent will help expedite renewable energy creation.
The fact that facilitating renewable energy expansion is critical not just from a financial perspective but also a national energy security perspective should inform such policies.
Interest rate policies also have a bearing on the renewable energy sector, and the sector needs to be cognizant of the impact that higher interest rates may have on debt funding for both current and future projects.
Renewable energy auctions have seen tariffs nosedive over the last two years. While this is great for the consumer, the question is whether the renewable energy sector in India is ready for a higher interest rate regime.
Renewable energy players must look at a careful analysis of converting floating interest rate loans to fixed rate loans and borrowing for longer durations where necessary to better prepare for a higher interest rate regime.
India needs to ensure that the pace of renewable energy expansion is affected as little as possible from rising interest rates.
With the expansion of renewable energy capacity, it is essential for the energy industry and the government to take stock of the risk of stranded thermal power assets. The primary concern is how do we deal with thermal plant assets that aren’t financially viable any more.
In a recent report entitled “An Assessment of India’s Energy Choices: Financial Performance and Risk Perception”, Vinit Atal and Gireesh Shrimali bring forth crucial points regarding the stranded asset risk.
As renewable energy increasingly becomes a greater source of energy at competitive price levels, the risk of stranded thermal plants goes higher. Unviable thermal power plants lead to more stranded assets, thereby adding to the Non-performing assets (NPAs) for banks. Atal and Shrimali hold that investors “perceive renewable energy power investments to be less risky than fossil fuel power investments”.
The government needs to think of the long-term ramifications of the growth of renewable energy on existing thermal power plants and any new thermal power plants in the pipeline. Given the long-dated nature of power plant assets, closer scrutiny around asset viability is warranted to avoid a build-up of more NPAs.
India has made significant progress over the last decade in the renewable energy sector. However, given the rising energy needs and the dependency on energy imports, now is the time to push the energy “independence” agenda further and faster. Greater policy clarity, consistency in policies and a focus on the broader economic mandate are urgently needed.
(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. The views expressed are personal. He can be contacted at taponeel.mukherjee@development-tracks.com or @Taponeel on Twitter)
—IANS
by admin | May 25, 2021 | Economy, Markets, News
By Rohit Vaid,
Mumbai : Persistently high global crude oil prices, along with the rupee’s movement against the US dollar and the ongoing quarterly results season are expected to drive the trajectory of the key Indian equity indices in the coming week.
However, analysts predict a negative reaction from investors on the formation of a non-BJP government in Karnataka and any further outflow of foreign funds.
“Markets will closely track the floor test results in Karnataka,” Devendra Nevgi, Founder and Principal Partner, Delta Global Partners, told IANS.
“Globally USD, US interest rates and crude oil prices need to be monitored due to their influence on the local markets.”
Apart from Karnataka politics, crude oil prices which have lately been around the $80 per barrel-mark are expected to impact investor sentiments.
As per the latest estimates of the Finance Ministry, the rise in oil prices may inflate India’s import bill by around $25 billion to $50 billion. The surge has already pushed the cost of petrol in the national capital to Rs 75.32 per litre.
Besides, the rupee’s price movement against the US dollar will also be crucial for the market, especially in the backdrop of a continuous outflow of foreign funds.
“Rupee continues to weaken against the US dollar as outflows continue across the emerging markets. However, high oil prices and political risk premium in a pre-election year is ensuring that the rupee remains as an underperformer in the EM basket,” Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.
“Developments in Karnataka are not going to have any lasting adverse impact on the rupee bit come Monday, but there is a risk of a knee-jerk sell-off in the INR against the USD.”
On a weekly basis, the Indian rupee weakened by 68 paise to close at 68.01 against the US dollar from its previous close of 67.33 per greenback.
In terms of investments, provisional figures from the stock exchanges showed that foreign institutional investors sold scrips worth Rs 1,496.79 crore during the trade week ended May 18.
According to the National Securities Depository (NSDL), foreign portfolio investors (FPIs) divested equities worth Rs 799.88 crore, or $117.63 million.
In addition to the rupee’s movement, companies like Bata India, Bharat Forge, Bosch, Cipla, Dr Reddys Lab, Future Consumer, IndianOil, State Bank of India, Jet Airways and Tata Motors are expected to announce their fourth quarter (Q4) earning results in the coming week.
“We are also expecting to see a mixed bag of result for Q4 going forward. With Q4 results below estimates, there are concerns of downgrade in FY19 estimates,” said Vinod Nair, Head of Research at Geojit Financial Services.
Technical charts showed the National Stock Exchange’s (NSE) Nifty50 in a downtrend.
“Technically, with the Nifty ending lower for the fourth consecutive session and closing below the short term trend reversal levels of 10,630 points, the underlying uptrend has reversed,” said Deepak Jasani, Head of Retail Research for HDFC Securities.
“The coming week could see further downsides towards 10,514 points and lower. On the upside bounces, 10,692 points-level can offer resistance.”
The political stand-off in Karnataka, consistent rise in global crude oil prices and outflow of foreign funds, pulled the key Indian equity indices deep into the red in the week just-ended.
Consequently, the barometer 30-scrip Sensitive Index (Sensex) of the BSE declined by 687.49 points or 1.93 per cent to 34,848.30 points.
Similarly, the wider NSE Nifty50 edged-lower. It ended at 10,596.40 points — down 210.1 points or 1.94 per cent — from its previous close.
(Rohit Vaid can be contacted at rohit.v@ians.in)
—IANS
by admin | May 25, 2021 | Opinions
By Amit Kapoor,
Just as the Indian economy was limping back to normalcy after an elongated period of subdued growth, oil prices have thrown a spanner in the works right on cue.
Oil prices, which had fallen to sub-$40 levels, are back with a vengeance having climbed to over $75 a barrel recently; the highest since 2014. It is expected to go even higher with some reports suggesting that Saudi Arabia is trying to target a price of $80 per barrel. The economic crisis in Venezuela and the inevitable sanctions on Iran by the United States will only take more oil off the world markets and worsen the situation.
As usual, India faces worries of rising inflation, government spending and current account deficit. The last time oil prices were at their peak, India was being pegged as one of the “fragile five” economies that were most at risk from the infamous “taper tantrum” of the US Federal Reserve. At the time, the current account levels of the economy were expectedly high at 4.8 percent due to the massive import bill. Then, some responsible policy activism by the Reserve Bank of India and a crash in the world oil markets brought India back from the brink to a point where the current account deficit had narrowed down to 0.7 percent in 2016-17.
Now that oil prices are back up again, the current account deficit has begun to widen to levels as high as 2 percent. This is not a problem in itself as India has accumulated a healthy amount of dollar reserves over time. But, with the rupee consistently falling since the start of the year to become the worst performing currency in Asia, the import bill might soon spiral out of control. Even exports are not rising at a commensurate level to compensate for it. In fact, export growth had turned negative in March.
The timing of the oil price rise could not have been worse for the government. Several state elections are lined up and the general elections are barely a year away. Any additional burden on the consumer will have political backlash. But bringing back controls on petroleum products that have been gradually eliminated since 2014, will have far-reaching economic ramifications.
Before deregulation took place, the petroleum companies were asked to sell below cost if world oil prices rose and their books were balanced through government-issued IOUs. This ended up wiping out any additional cash reserves of the companies leaving them to borrow to sustain operations. As a result, these oil companies are barely left with any capital to undertake infrastructure investment and R&D expenditure. If this had not been the case, India could have made massive long-term gains with higher oil exploration to meet domestic demand and refinery upgradation to meet global emission standards. So, reverting back to the old system of controls should be out of the question.
The government is, therefore, left with two clear options. The first is to let the market forces take over and allow the companies to raise prices gradually. However, inflation would become a serious irritant within the economy in that case. It would eventually provoke a rate hike from the Reserve Bank of India (RBI) and dampen investment sentiments across the economy that have only recently shown signs of revival.
Second, the government could reduce the indirect taxes on petroleum products and balance out the price rise. After all, the Centre and State taxes combine to make for an effective rate of about 100 percent for petrol and 65 percent for diesel. So, there remains immense scope for tax reduction. However, such a move would reduce the revenue collection of the government and take the country further away from the fiscal commitments it had made. Since the Centre and the State derive almost 40 percent of their revenue from petroleum products, it is not an easy loss to bear.
The situation boils down to this. Given rising oil prices, either the government lets free market reign and allow for inflation or reduce taxes to maintain prices at same level and possibly give up on fiscal consolidation, which would also eventually be inflationary. The government is truly between a rock and a hard place.
But when oil prices had crashed after 2014, the government had not passed off the full benefits to the consumers by levying higher taxes with the understanding that the taxes would be reduced when world prices flare up. This was the perfect mechanism to ensure consumption smoothening and maintain adequate revenue levels of the government. Therefore, a downward adjustment of petroleum taxes is overdue. The best way out would be to do so and pursue other measures to maintain fiscal commitments.
(Amit Kapoor is chair, Institute for Competitiveness. The views expressed are personal. He can be contacted at amit.kapoor@competitiveness.in and tweets @kautiliya. Chirag Yadav, senior researcher, Institute for Competitiveness, has contributed to the article)
—IANS
by admin | May 25, 2021 | Commodities, Commodities News, World
By Ovunc Kutlu,
New York: Crude oil prices posted their biggest weekly losses Friday in more than two years, after rising crude production and the number of oil rigs in the U.S. has brought back fears that crude supply would increase in the global market.
The international benchmark Brent crude lost 8.7 percent between Feb. 2 – Feb. 9, while the American benchmark West Texas Intermediate (WTI) fell 9.8 percent during that period.
This was the biggest percentage decline in a single week for oil prices since January 2016 when low global demand and the glut of oil supply pushed oil prices down.
During the week of Jan. 8 – Jan. 15, 2016, both the Brent crude and WTI dived below $30 a barrel — their lowest point in 13 years.
On Friday, both benchmarks posted a 3.4 percent daily loss, after the oil rig count in the U.S., which signals the short-term production change, showed a strong increase.
The oil rig count in the country rose by 26 this week, the strongest weekly gain in a year, oilfield service provider Baker Hughes data showed earlier.
With that result, the total number of oil rigs in the U.S. reached 791, the highest level since April 2015.
Production of crude oil in the U.S. also climbed to a record high level last week by reaching 10.25 million barrels per day (mbpd), according to the Energy Information Administration (EIA) data released on Wednesday, and surpassed the crude output of Saudi Arabia.
The EIA said Tuesday it projects the U.S.’ crude oil production to average 10.6 mbpd in 2018, and 11.2 mbpd in 2019, to surpass the world’s biggest crude producer Russia.
—IANS
by admin | May 25, 2021 | Economy, Employment, News, Overseas
By Sanu George,
Thiruvananthapuram : With the Middle East, which was once the dream of many a Keralite, no longer that attractive on account of falling oil prices and with no proper records of the actual number of returnees, a new diaspora study covering 25,000 households has been launched to find out what the actual scenario is.
The study aims to not only analyse not the present trends in migration but also the medium and long-term consequences of important developments like the global financial crisis of 2009, the drop in oil prices and the stricter immigration policies increasingly followed by countries worldwide and its impact on Kerala’s economy.
S. Irudayarajan, who heads the study by the Migration Unit at the Centre for Development Studies here said its single purpose is to examine ground realities and not to go by unfounded reports that there is a mass exodus from the Middle East.
“This new survey has been titled Kerala Migration Study-KMS@20. It is the eighth a series that begain in 1998. The study would be done in 25,000 Kerala households spread over all the 14 districts and the first results would emerge in April,” Irudayarajan told IANS.
KMS is widely regarded as a reliable and authentic source of data for researchers and policymakers. Following the success of the Kerala model, similar initiatives have been launched in Tamil Nadu, Punjab, Goa and Gujarat, from where large numbers of people have spread out across the globe.
Irudayarajan pointed out that structural changes in the global oil market and the consequent fall in oil prices have posed fresh challenges to the oil-producing countries in the Middle East in the last few years.
“The repercussions are being felt in Kerala’s economy and society which has been a consistent supplier of workers and a receiver of large amounts of remittances. Additionally, the governments in Gulf countries have been progressively evolving institutional arrangements and programmes aimed at promoting the employment of their own nationals,” Irudayarajan said.
He also pointed out that the things are not rosy was pointed out in the KMS-2016 study, when for the first time a decline was noticed in number of Kerala emigrants abroad from 2.4 million in 2014 to 2.24 million in 2016 — a drop of 160,000 lakh.
The state had 1.36 million emigrants when the first KMS was conducted in 1998. The figure rose to 1.83 million in 2003, 2.19 million in 2008, 2.28 million in 2011 and peaked at 2.4 million in 2014.
He added that once the results are out later in the year, the state government can evolve appropriate interventions in education, employment and skill development of prospective emigrants as well as the re-integration of returnees into Kerala’s economy and society.
Irudayarajan pointed out that it was wrong to come to conclusions only based on the arrivals and departures from the three Kerala airports as this will only give a lop- sided picture.
“The figures from the airports are only numbers and do not differentiate between workers and others, as they include women and children. Besides, there are a good number of Keralites who goe for holidays to the Middle East. Our 2016 survey had already showed that there was a decline and now in a few months from now, we will bring out the actual picture,” Irudayarajan added.
Remittances from migrants have been instrumental in sustaining Kerala’s economy, constituting 36.3 per cent of the state’s net domestic product. It is now widely accepted that migration has played a significant role in poverty alleviation and in raising the living standards of about one-third of Malayali households.
“Moreover, it is postulated that an additional one-third of the population is indirectly benefitted from the economic opportunities created by remittances from abroad,” Irudayarajan explained.
According to the figures released by the State Level Bankers Committee, the rate of growth of NRI deposits has come down of late. If one looks at the deposits at the 6,339 branches of various commercial, scheduled and private banks, they stood at Rs 117,349 crore in June 2015, grew to Rs 142,668 crore in June 2016 and at Rs 154,252 crore in June 2017.
(Sanu George can be contacted at sanu.g@ians.in)
—IANS
