What is the meaning of crude oil crossing $ 90 for India, how much will be affected

Crude Oil Price / What is the meaning of crude oil crossing $ 90 for India, how much will be affected
Crude Oil Price - What is the meaning of crude oil crossing $ 90 for India, how much will be affected
Crude Oil Price: Crude oil plays a big role in an economy like India. At present, the increase in crude oil price does not pose a big risk to macro fundamentals, but if the price continues to rise then its impact on the Indian economy can be seen. Brent crude crossed $90 a barrel on September 5 after the OPEC+ bloc, a group of oil-producing countries, extended production cuts for three more months. According to the news of Indian Express, this price level is the highest after November 2023, which is still around this.

The challenge for India is because it is the third largest buyer of crude oil. Expensive import of crude can further increase the burden of current account deficit and slow down the pace of GDP. Despite this, there are some factors that support the economy.

Current Account Deficit

According to the news of Indian Express, Bank of Baroda economist Deepanvita Majumdar says that since India imports more than 80% of its total oil requirement, there is a possibility of impact on the current account deficit and the rupee. In the current financial year till July, incoming oil shipments were $55 billion.

Majumdar said that our estimate is that on the basis of $ 80-85 per barrel, there is a possibility of growth of oil imports by $ 15 billion or 0.4% of GDP.

Foreign Exchange Reserves

Gaura Sen Gupta, India Economist of IDFC Bank, said that the strength of foreign exchange reserves and dollar is expected to remain in the coming time. Sen Gupta said that the rise in crude oil will also increase the pressure of depreciation on oil importing currencies like rupee. In such a situation, a lot depends on the foreign exchange intervention of RBI whose objective is to reduce volatility on both sides. The dollar-rupee pair is expected to remain range between 82-84 till December.

Dearness

There is currently no risk of inflation due to increase in crude oil prices. This is because despite the volatility in crude oil, there has been no increase in the prices of domestic petrol and diesel since May 2022. It is expected that retail inflation will average 5.8% in FY 2024. It is believed that no major change is expected in domestic retail petrol and diesel prices till March 2024. Petrol and related products have a weight of 2.4% in the CPI basket. A 10% increase in crude oil directly means an increase of 15 basis points in retail inflation.

Experts say that high prices of crude oil slow down the gross domestic product (GDP) growth by increasing pressure on imports. A sustained increase in oil prices to about $10 per barrel reduces GDP growth by about 20 basis points.

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