Why India is protected from the global slowdown

Victor Mallet writes:

Amid gloom over global economic growth and uncertain prospects for emerging markets, India is beginning to stand out as uniquely well-placed to gather the windfall benefits of an international slowdown.

Unlike Brazil, Russia or South Africa, India reaps immediate advantages for its terms of trade and its domestic budget from the fall in commodity prices triggered by renewed concerns about the world economy.

And unlike China, India will not suffer much from any decline in global demand for manufactured goods because its export sector is relatively small.

Commodities – mostly oil – account for more than half of India’s imports but only 9 per cent of its exports, mainly food. The current account deficit falls by about $1bn a year for every $1 decline in the price of a barrel of oil, and the reduced cost of fuel subsidies is also easing the burden on the budget.

Another benefit of weaker commodity prices is falling inflation, long the bane of the Indian economy.