INFLATION MAY RISE ON OPEC CUT

India’s import bill of crude oil is expected to increase by $2.5 billion for the last quarter of 2016-17 following the rise in crude prices after the 14 member-OPEC (Organisation of the Petroleum Exporting Countries) which supply 34 per cent of global crude oil agreed for its first oil output cut in the last eight years on Wednesday.

Based on the trends in imports of crude oil in the first 7 months, it has been estimated that the total imports for January-March 2017, would be around 491 mn barrels.

Since the output cuts are invoked from January, for every dollar increase in the price of crude oil, the overall import bill will increase by around $500 mn or half a billion.

If the price increases by $5 per barrel, then the additional import cost would be around $2.5 bn for the last quarter of the year, said Care ratings in a report on the impact. Care economist Madan Sabnavis does not rule out higher production from the US which will stabilise prices.

This rise post-Opec decision, will have a ripple effect on prices and inflation. The weight of crude oil, petroleum, ATF and diesel is around 7 per cent in the WPI so it can be inferred that a 5 per cent increase in crude oil prices (based on the basket of Indian imports) would push up the direct cost by around 0.35 percentage points.

Products like LPG and kerosene are partly protected through subsidies and would also entail a cost for the government.

AS FAR as other goods are concerned there could be an increase of between 30-40% through indirect impact