Brent crude oil prices on Thursday hit $80 per barrel for the first time since November 2014 on supply deficit concerns. With India meeting more than 80% of its oil needs through imports, the world's third-largest oil consumer after US and China will feel the heat of the global development. Here's how the Indian economy will be affected due to the surge in oil prices.
India, world's third-largest oil producer after US and China, imports about 1,575 million barrels of crude oil on an annualised basis and a dollar increase in oil prices would increase the import bill by roughly $1.6 billion (Rs 10,000 crore) on an annual basis, said CARE Ratings. India relies more than 80 per cent on imports to meet its oil needs. Every dollar per barrel change in crude oil prices impacts the import bill by Rs 823 crore ($0.13 billion). The same is also the impact when currency exchange rate fluctuates by Re 1 per US dollar.
Every $10 per barrel rise in the price will worsen India's fiscal balance by 0.1% and current account balance by 0.4% of GDP, according to estimates of global financial services major Nomura. Chief Economist Adviser to the government Arvind Subramanian too has said every $10 per barrel rise in oil price brings down GDP growth by around 0.2-0.3 percentage points and worsens the CAD (Current Account Deficit) by about $9-10 billion dollars.
VK Vijayakumar, chief investment strategist at Geojit Financial Services said, "Crude at $80 is bad news for rate-sensitive stocks since inflation and interest rates are likely to go up. The PSU oil marketing companies also will be negatively impacted while ONGC will be a beneficiary. Paint and aviation sectors also will be adversely impacted."
Further high crude oil prices lead to lower corporate profit margins due to rising input costs and accordingly impact investment, among others.