A forced and rapid transition of the Indian economy towards using less cash is likely to result in businesses not paying tax becoming unviable, says a report by Ambit Capital Pvt. Ltd. The government’s demonetization move is being followed up with initiatives to use formal payment channels including digital, and disincentives are being put in place for cash usage.
India’s informal economy, which was reliant on cash, may shrink rapidly going ahead. Ambit estimates that its share can fall from 40% as of the third quarter to 20% by fiscal year 2020.
Will rising fuel price stymie car sales?
The risk to automobile sales from higher fuel costs bears watching. Loan rates have been stable at lower levels, which is good for sales. But fuel prices, a main driver besides interest rates for auto sales, are rising. According to India Ratings and Research Pvt. Ltd, average petrol price has increased to Rs73.5/litre (retail price, Mumbai) in Q3FY17 from Rs67.3/litre in Q1FY17. Diesel price rose to Rs61.2/litre from Rs58.6/litre, in the same period.
An uptrend in international crude oil prices may continue to reflect on retail fuel prices. This poses a risk to the growth in retail auto sales, especially passenger cars, where fuel costs add to the cost of ownership of a vehicle throughout its lifetime. High fuel costs may offset the benefit from lower interest rates. In the immediate future, however, India Ratings reckons auto firms may push sales using higher discounts to prevent a build-up of inventory.
Hedge funds bet big on crude oil
Crude futures rose for a second day on Tuesday, with data showing hedge funds are betting big across oil markets following the Organization of the Petroleum Exporting Countries’ (Opec’s) production cuts agreed last year. Investors now hold more crude futures and options than at any time on record, after members of Opec committed last year to cut output. Speculators raised their bets on a rally in Brent oil prices to a record last week, data from the Intercontinental Exchange showed on Monday, mirroring the optimism in the US crude oil market. Data on Friday showed net long US crude futures and options positions in the week to 14 February were at a record. Reuters
