The Economic Survey 2018 estimates that every $10 per barrel increase in the price of oil reduces growth by 0.2-0.3 percentage points. The comprehensive annual document on the Indian economy, which was tabled on Monday in the Parliament by Finance Minister Arun Jaitley, said that country’s economic growth is expected to grow between 7 and 7.5% in the fiscal year 2019, while flagging concerns over rising crude oil price.
The survey said that the oil price is expected to grow by average 12% in the FY19. The Economic Survey estimated that every $10 per barrel increase in the price of oil reduces growth by 0.2-0.3 percentage points, increases WPI inflation by about 1.7 percentage points and worsens the CAD by about $9-10 billion dollars. India imports 82% of its total oil requirement and Brent crude oil makes up around 28% of India’s total imports.
“The average oil prices are forecast by the IMF to be about 12 percent higher in 2018-19, which will crimp real incomes and spending—assuming the increase is passed on into higher prices, rather than absorbed by the budget through excise tax reductions or by the oil marketing companies,” the Economic Survey 2018 said. And if higher oil prices require tighter monetary policy to meet the inflation target, real interest rates could exert a drag on consumption. Read More
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