Wednesday, October 07, 2015

Upside, Downside Risks

China's slowing economy has resulted in a windfall of declining commodity prices - particularly lower oil prices - which has been helping India's economy while keeping inflation down. This has given RBI governor Raghuram Rajan some breathing room to lower interest rates, which will further boost Indian businesses' access to capital to improve growth:

http://www.fool.com/investing/general/2015/10/06/lower-rates-keep-powering-india-higher.aspx

http://thediplomat.com/2015/10/the-significance-of-indias-big-rate-cut/

This virtuous cycle of economic upliftment may also improve Modi's political fortunes and boost his pro-development agenda. If this situation lasts for the next few years, we may finally be seeing India's economy enter the takeoff stage irreversibly.


So is there any risk of something happening which could undo India's upturning fortunes? Well, it may be possible that an oil price shock could occur, perhaps due to Russia's escalating presence in the oil-rich Middle East:

http://www.nytimes.com/2015/10/08/world/middleeast/russia-syria-conflict.html?_r=0

As we know, the Russia's economy is heavily dependent upon oil revenues, so engineering an oil price rise wouldn't exactly be contrary to their interests. Likewise, Syria's patron Iran also has a heavily oil-dependent economy that would benefit from an oil price spike. At the very least, Russian ownership of Syria would put it in a pole position to call many shots in the Middle East. The territory stretching from Russian-reinforced Syria all the way to Iran represents a lot of oil production. And Saudi Arabia lying to the south of that could find itself a sitting duck.

No comments: