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In a rare move, PM Modi, has, on two separate occasions, made a direct appeal to citizens to avoid unnecessary travel, to embrace Work From Home and to reduce non-essential gold purchases. This comes at a time when India cannot shield its population from price rise anymore, especially as it has, so far, not increased petrol and diesel prices despite crude oil being more than 50% dearer since the start of the Middle East conflict.
India is the last developing country to shield its population from the conflict, even as neighbouring Bangladesh, Sri Lanka and Pakistan have already increased their petrol and diesel rates due to supply chain issues.
The cost of shielding us from inflation: ₹1,000 Crore Daily Loss
The critical Strait of Hormuz continues to remain blocked, with just a 3% trickle of oil passing through it after it was closed for commercial shipping. The Strait, which usually carries almost 20% of the world’s petroleum, has cut the tap for the fuel. Thankfully, India has been sourcing its oil from other sources- but the price rise has remain elevated to over $105 per barrel, from the $70 per barrel before the war.
Oil Marketing Companies (OMCs) BPCL, HPCL and IOCL have been losing almost ₹1,000 crore daily by selling fuel below the cost price.
Why investing in gold doesn’t benefit the economy
India produces virtually no gold locally, but remains the world’s largest gold importer, with demand skyrocketing almost 24% to $71.98 billion this year. With Gold remaining a popular investment asset, it affects our forex reserves, as we are paying for it in US Dollars through our forex reserves. This investment remains unproductive, as it is just sitting in a locker without gaining us any economic value, hence PM Modi’s request.
Reduce consumption of edible oils
India may be self-sufficient in foodgrain production, but not for edible oils. We are currently dependent on Southeast Asia and Russia for our 60% of our edible oil needs. This import bill cannot be deferred, and PM Modi wants us to cut consumption of edible oils to protect our forex reserves.
Forex reserves under threat?
India’s forex reserves are currently at about $690 billion and are sufficient for now, even though we’ve used about $38 billion since the outbreak of the Iran conflict, the steepest amongst regional economies. India has been in this situation before, with the forex reserves offering a buffer against the challenges of oil price shocks, as seen in 2013.
But an extended war, with no hope of an end, could make things worse for India, even as we remain on a stronger footing so far. Our forex reserves remain limited, and a weakening rupee has made imports expensive.
No wonder PM Modi wants us to cut down on avoidable imports- and austerity remains a way we can work towards stopping India from a crisis that could worsen in the coming days.
English (US) ·