How will commodity prices affect India’s GDP growth in 2017, 2018?


The latest global economic outlook from the International Monetary Fund (IMF) has revised its forecasts for average oil prices this year, compared with its July estimates. On the contrary, its non-fuel commodity price forecast has been revised upwards. India is a major beneficiary of the lower prices of crude oil and raw materials.

The chart shows the unexpected gains that have accrued to selected countries due to lower commodity prices in 2015 and 2016. The IMF has estimated the unexpected gain as an estimate of the change in disposable income derived from price changes of commodities. In 2015, falling commodity prices led to unexpected gains of 3.4% of India’s gross domestic product (GDP) and its real GDP growth was as high as 8% in 2015-16.

The chart shows that India has been one of the biggest beneficiaries of falling oil and commodity prices both in 2015 and 2016. However, this year and next is expected to lose 0.43% and commodity prices. The increases for 2017-18 are simple averages of incremental annual gains for 2017 and 2018. In its July 2017 World Economic Outlook update, the IMF projected a loss of trade term of 0.64% of GDP for 2017 and 2018 for India. The loss has now been revised lower.

However, the IMF believes that the growth of commodity importing countries will remain strong in the medium term. “Growth is expected to remain high for the group of commodity importing countries, accounting for most of global growth, with higher growth in India and other commodity importers than offsetting a slowdown in China.”