From the lows of 30 dollars in 2016, the crude prices have now risen to above 60 dollars. With, Organization of Petroleum Exporting Countries (OPEC) cutting production, global oil markets seem to be broadly balanced now after years of oversupply.
However, this development could end the government's fiscal honeymoon. One huge advantage which the Modi government enjoyed since coming to power was weak oil prices. This significantly reduced the import bill of the government, which aided the government to maintain fiscal deficit at lower levels.
Considering that India imports 80% of its oil requirements, it could be a big negative for the economy. Every one dollar rise in the crude oil prices, raises our import bill by a mammoth US$ 1.33 billion. This money could rather have been spent on infrastructure activities which could well have spur the economic growth of the country.
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The rise in the crude prices will also threaten the government's commitment to maintain fiscal deficit at the level of 3.2%. Higher crude prices would lead to larger outflow of money from the government's coffers. In order to arrange for this huge outflow, the government will need to borrow more.
An increase in government borrowings would not bode down well for the economy. It may lead to ratings downgrade leading to significant outflows from foreign institutional investors (FIIs). Further, increased borrowings would also lead to RBI maintaining interest rates at current levels or also increasing them from hereon.
The initial public offer (IPO) of HDFC Life got oversubscribed by around five times backed by strong demand from institution. A large chunk of the IPOs of insurance company have got listed below their issue price on account of their high valuations. Confused, as to whether to grab on to this stock post the listing on the bourses? Click here (subscription required) to get a detailed view on the business, historical fundamentals and our view on this IPO.
The stocks of Mayur Uniqouters, Salzer Electronics, S Chand and Company, Spenta International is expected to be in news today as they declare their September quarter results.
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