Every Monday, Mint’s Plain Facts section features key data releases and events to look out for over the coming week. All eyes will be on weekly foreign reserves data, under pressure due to rupiah volatility, as Indonesia’s decision to lift a ban on palm oil exports could lead to a price correction. An early onset of the monsoon will relieve the extreme heat and could bode well for India’s economy.
1. Foreign exchange reserves
The Russian-Ukrainian war worries India a lot. India’s heavy reliance on crude oil prices, which are still trading above $100 a barrel, has caused serious risk to the rupee and the current account deficit. India’s foreign exchange reserves, which hit $642 billion in September, act as a buffer against external risks, leading to a significant decline. During the week ended May 13, foreign exchange reserves had fallen to $593 billion.
The pressure on the Indian currency and, therefore, on foreign exchange reserves, is expected to continue due to the continued influx of foreign investors and inflationary pressures from the war in Europe. Foreign exchange reserves had already registered the 10th weekly decline the previous week and the decline likely continued in the week ended May 20, data from which is due on Friday, as the rupee continues to hover near one record level.
2. Indonesia’s palm oil exports
Indonesia, the world’s largest producer of palm oil, decided to lift the export ban on the commodity from Monday. The move is expected to drive down edible oil prices around the world. More importantly, this is a great relief for India, as the country is already facing strong inflationary pressures from edible oils and is also heavily dependent on Indonesian palm oil to meet domestic needs. In April 2021 and February 2022, Malaysia was the largest supplier of palm oil, but Indonesia still accounted for 40-45% of total palm oil imports.
As palm oil is used as a raw material in several household products such as soaps and biscuits, a shortage would have intensified the cost of manufacturing these products. The short-lived ban, which began on April 28, caused prices to spike sharply. However, lifting the ban is now unlikely to dampen headline inflation, as other factors may keep prices high.
3. Early monsoon
India could benefit from a respite after the heat wave that has raged in recent weeks. The southwest monsoon could reach Kerala shores on Friday, four days earlier than the normal start date of June 1, according to the Indian Meteorological Department.
The monsoon entered the Andaman Sea last week, with favorable weather attributed to Cyclone Asani. The four-month seasonal rains are crucial for India’s agrarian economy. It accounts for 70% of India’s annual rainfall and irrigates more than half of India’s cropland. As the country reels from the impact of high inflation, especially high food prices, improved plantings can also lead to increased yields. This, in turn, could mitigate runaway inflation levels.
4. IPL Final
The 15th edition of the Indian Premier League (IPL) comes to a close this week, with the final game to be played in Ahmedabad on Sunday. The first qualifier will oppose the Gujarat Titans (GT) and the Royals of Rajasthan on Tuesday, and the winner will seal their place in the final. This will be followed by an ‘eliminator’ between Lucknow Super Giants (LSG) and Royal Challengers Bangalore on Wednesday. The loser of the first qualifier will have another chance in the final when they face the winner of the eliminator on Friday. This is the first season that none of the three most successful teams in IPL history have reached the last four, as both new franchises – LSG and GT – have succeeded on their first attempt.Jos Buttler and Yuzvendra Chahal of Rajasthan Royals are the top contenders for the orange and purple caps so far, awarded to top scorer and wicket taker.
5. In other news
The Uttar Pradesh government is due to present its first full budget since its re-election on Thursday. The governor’s address and budget would be filed digitally through the National Application Center e-Vidhan (NeVA), an application developed by the Center for the Paperless Operation of Legislatures. The budget will be presented against the backdrop of Uttar Pradesh’s emergence from the covid-19 pandemic which has hit the state hard. State Finance Minister Suresh Khanna said the budget will focus on “creating infrastructure, employment and youth”.
Separately, Prime Minister Narendra Modi will attend the third Quad Leaders’ Summit in Tokyo on Tuesday. Modi is also expected to hold bilateral talks with US President Joe Biden. The Quad is an informal strategic alliance formed in 2007 between India, Japan, the United States and Australia to ensure better cooperation between the four Indo-Pacific nations and is generally seen as a response to the rising power from China.