Why a high oil price is India’s biggest threat

dubai — High oil prices have emerged as a significant risk to India’s economy, according to a majority of Indian and foreign investors.

Moody’s Investors Service said based on an investor survey that while most of the respondents highlighted high oil prices as the top risk, 30.3 per cent of those in Singapore picked rising interest rates as the next top risk and 23.1 per cent of those in Mumbai picked domestic political risks as the second top risk.

Moody’s vice-president Joy

Rankothge said the report is based on investor feedback on issues such as top risks facing the Indian economy, fiscal deficit, the recapitalisation package for public sector banks and credit conditions for Indian corporates.

Most respondents said they believed India would not meet the central government’s fiscal deficit target of 3.3 per cent of GDP for the current fiscal.

The rating agency’s report is based on a survey of 175 respondents.

Economists believe the oil price hike would put pressure on fiscal and current account deficits in the year ahead as India imports more than 70 per cent of its oil requirement.

High oil prices will adversely impact all major macroeconomic variables such as current account, currency, inflation, interest rate, fiscal deficit, GDP growth and conduct of monetary policy, they said.

India’s petroleum and natural gas ministry estimates the country’s crude oil import bill may increase by 20 per cent to $105 billion in this financial year from $88 billion in 2017-18.

The estimate assumes an average crude oil price of $65 per barrel for the year, about $8-9 a barrel less than the current rate.

Most analysts estimate that high crude oil prices are likely to inflate India’s current account deficit in a range between $22 billion and $31 billion in the current financial year ending March 2019.

— issacjohn@khaleejtimes.com