This refers to “Oil at $100? What it means for India, world economy” (April 30). The abrupt scaling up of oil prices by the US will only have a short-term advantage for them. Oil is a basic supporting commodity for most economic activities and not an independent product. Emerging economies with large fiscal deficit will exercise restraint in the import of oil, resulting in an economic slowdown. This will impact the global balance of trade negatively. Although in the short run, the rise in oil prices will be neutralised by trade in other commodities, inflation will subsequently impact all economic activity even in developed economies.
The impact of inflation will be apparent in the US economy also. The US being a developed economy with adequate raw material, its capacity to meet global demands along with other oil rich nations will be insufficient. Hence, it has to ultimately align its oil trade policies in favour of India for an amicable exchange of trade. The impact of inflation will thus be as economically damaging to them as it is for other global nations. Central banks also need not fear a flight of capital as there is no scope for a shift in investment in stagnant global environment. Finally, an aggressive approach with frequent devaluations and revaluations of currency will add to market uncertainty coupled with uncertain currency exchange values. Accordingly, in the long run, everyone loses and no one wins.
C Gopinath Nair , Kochi
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