Two oils and the economy on fire

According to recent data, India imports around 175,000 to 200,000 tonnes of sunflower oil per month. The war between Russia and Ukraine has hit the edible oil supply in a big way.

Dear Readers,

Two oils and the economy on fire

With the invention of the wheel and fire control, the human race progressed rapidly. From huts to apartments and bullock carts to four-wheelers it kept on evolving continuously and consistently. Various revolutions took place and industries achieved huge scales. From industrialization to digitalization to automation to Web-3 to Metaverse the journey has been exhilarating.

While the world is a circle we are running in a square box called QR scan code, which is making our life seamless from travel to shopping and work to home. We have been lucky in many ways in the digital age, but not so lucky to find an easy alternative to two oils without which we can't imagine life. Edible and crude oils are the two major factors that can actually dent every economy in the world. Let me explain why.

Edible Oil

For years India has been importing edible oils such as soybean, olive, sunflower and coconut since it consumes them heavily. Over the years, India’s imports of edible oil have grown almost 200%. Currently, India imports around 60% of edible oil. According to recent data, India imports around 175,000 to 200,000 tonnes of sunflower oil per month. The war between Russia and Ukraine has hit the edible oil supply in a big way.

Two oils and the economy on fire

India's domestic production of edible oil can't cater to the demand. According to the Ministry of Consumer Affairs, the gap is more than 50%. Domestic consumption is nearly 250 lakh tonnes whereas domestic supply for edible oil is around 100 lakh tonnes.

Crude Oil

India is 90 per cent dependent on imports for petroleum products and is the third-largest importer of crude oil globally due to high consumption. According to the Oil Ministry’s Petroleum Planning & Analysis Cell, India spent $119.2 billion in FY 2021-22 on crude purchases, almost double from $62.2 billion in the previous year. The Persian Gulf, Africa and South America are the large exporters of oil to India. Crude oil prices have been significantly volatile in the last few weeks, especially after the war began. In fact, it reached $140 per barrel, which is near its record high. And analysts say it may reach $150 a barrel sooner rather than later.

And the major worry is both the oils are inflation-sensitive products and have already fueled inflation. Major economies are seeing a fall in growth. Inflation which is largely driven by the oils is as big a worry as a war. That's why central banks all over the world are changing their policies and prioritising the inflation fight. The RBI took strong steps this week and hiked the policy rate by 40 bps after three years and eight months.

The RBI Governor Shaktikanta Das said, “Globally, inflation is rising alarmingly and spreading fast. Geopolitical tensions are ratcheting up inflation to their highest levels in the last three to four decades in major economies while moderating external demand. Global crude oil prices are ruling above $100 per barrel and remain volatile,”

Where will oil go is a major worry now. The RBI says the jump in fertiliser prices and other input costs has a direct impact on food prices in India going ahead. The central bank sees the pressure of food inflation building up in the near future.

The RBI’s move will certainly end the low interest rate cycle and banks may also go slow on lending. So economies will face major ups and downs going ahead and whether the RBI’s move will control the inflation will have to be seen.

But as the governor quoted the Greek philosopher Epictetus, “The trials you encounter will introduce you to your strengths. Remain steadfast… and one day you will build something that endures.” truly reflects the central bank’s stand.

Well, like always I am adding here the top five stories of the week that you shouldn't miss.

1. IndiaMART CFO looks to add 35,000 new customers in FY23, plans to hire 1,000 more people

2. CFOs say RBI's 40 bps rate hike crucial to contain inflation, don't expect major impact on demand

3. How ZebPay CFO is navigating regulatory uncertainty in cryptocurrency

4. GST revenue collection in April hits all-time high at Rs 1.68 lakh crore as compliance continues to improve

5. RBI raises interest rates by 40 bps to fight surging inflation but keeps stance accommodative

If you have any thoughts or feedback, please feel free to share them with me at amol.dethe@timesinternet.in

Happy Reading, Happy Weekend

Amol Dethe

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