Commodities Rally Unlikely To Hurt Indian economy

A global commodity rally is unlikely to hurt India, unless energy prices start picking up, Motilal Oswal has said in a report.

“Over the past few months, many commodities have seen a sharp increase in prices. The surge, however, is uneven across different commodities. There are broadly four baskets of commodities – base and precious metals, agricultural (food and non-food), and energy. While steel has touched fresh highs of USD1,000/t and edible oil just 10% lower than its record high (of CY08), precious metals and energy items have remained contained so far. Given the near absence of base metals in CPI and self-sufficiency in most food items in India, the impact of high commodity prices is expected to influence WPI rather than CPI. Additionally, India’s self-sufficiency in agri items and very low deficit in base metals implies its minimal impact on foreign trade,” the brokerage firm has said.

However, iron and steel being one of the major construction inputs and as it constitutes over 50% share in India’s GFCF, the rise in price there might affect India’s investment adversely.

“Interestingly, we observe that inflation in base metals and fuel have moved very closely. Therefore, a global commodity rally is unlikely to hurt India, unless energy prices start picking up,” Motilal Oswal has said.