Oil price rise to impact India’s GDP growth: Goldman Sachs

Monday, 25 April 2011 00:00 -     - {{hitsCtrl.values.hits}}

NEW DELHI: A rise in global oil prices by $ 10 per barrel would reduce India’s economic growth by 0.2 percentage points and also affect the country’s current account deficit, Goldman Sach said.

“A VAR (value-at-risk) analysis suggests that a $ 10 increase in oil would reduce GDP growth by 0.2 percentage point,” Goldman Sachs said in its latest edition of ‘Asia Economics Analyst’.

India imports three quarters of its annual oil and gas requirements, with the Middle East and North Africa regions contributing to a substantial chunk of it. India’s import bills amount to $ 18 billion.

Global oil prices have almost doubled in the past one year. The ongoing political unrest in Libya, a major oil exporter and OPEC member, has disrupted supplies and pushed up crude prices further.

Brent crude, one of the benchmark index, was trading at nearly $ 124 on April 23. Global oil prices are at the highest level in two-and-a-half years.

Earlier this week, the International Energy Agency called on oil producing nations to reassure the market by utilising spare capacity.

“With higher oil prices the sensitivities increase due to negative feedback loops from weakening stock prices and tightening stock prices and tightening financial conditions,” the report said.

The Indian economy is projected to grow at above 8.5 per cent in 2011-12, with the government aiming to increase growth to 9 per cent this financial year.

Regarding deficits, Goldman Sachs said: “According to our estimates, with every $ 10 increase in oil prices, the current account deficit (CAD) would rise by 0.4 percentage points.”

The CAD has been projected at 3.5 per cent of the GDP for the fiscal 2010-11. In his Budget speech, Finance Minister Pranab Mukherjee had said the target would be to bring it down further this fiscal.