The impact of rising oil prices on Indian economy4 min read 22 May 2018, 12:20 AM IST
Higher crude oil prices will adversely impact the twin deficits of current account and fiscal, which will have spillover effects on monetary policy, consumption and investment
India, the world’s seventh-largest economy, was a key beneficiary of falling crude oil prices between 2013 and 2015. An analysis by this newspaper, more than a year ago, had indicated that almost the entire reduction of about 0.6% of the gross domestic product (GDP) in India’s fiscal deficit between FY14 and FY16 could be attributed to the sharp fall in crude prices. Lower crude prices also contributed to the narrower current account deficit. The biggest benefit of the fall in oil prices was evident in narrower twin deficits. Since the pass-through of the fall in crude prices to retail consumers was limited (the government retained a large part of the benefits by hiking excise duty on retail fuel products), the direct impact on inflation—measured by consumer price index (CPI)—was muted.