Indian equities are sliding as crude oil prices increase because of the civil war in Iraq. It’s not without reason. India is the most vulnerable country in Asia if there is an oil supply shock.
The country has the worst net oil imports balance as a percentage of economic output among Asian nations. What makes things worse is that the country’s oil intensity, or consumption in tonnes per gross domestic product (GDP), is also on the higher side compared with its Asian peers. Secondly, sensitivity of oil prices to inflation tends to be higher for India, especially with the freeing of diesel prices on its way. This will have a domino effect on growth as well.
Moreover, there are fiscal implications. Losses on selling fuel below cost increase with higher crude oil prices. Such losses are estimated to rise by Rs.4,000 crore (0.04% of GDP) for every $1 per barrel increase in crude oil price and will climb up even more if the rupee weakens against the dollar,
The country has the worst net oil imports balance as a percentage of economic output among Asian nations. What makes things worse is that the country’s oil intensity, or consumption in tonnes per gross domestic product (GDP), is also on the higher side compared with its Asian peers. Secondly, sensitivity of oil prices to inflation tends to be higher for India, especially with the freeing of diesel prices on its way. This will have a domino effect on growth as well.
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