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India seen little hit by high oil prices
Surojit Gupta in New Delhi |
January 23, 2003 14:39 IST
Rising world oil prices sparked by fears of a US-led attack on Iraq and Venezuela's oil strike are unlikely to choke off India's nascent industrial recovery thanks to its comfortable energy stockpiles, analysts say.
"Even if there's a war, it's unlikely to last beyond a few weeks," said B B Bhattacharya, director of the Institute of Economic Growth. "The government will be able to manage if the conflict lasts for one or two months."
But hostilities any longer than two months could pose tougher challenges for Asia's third-largest economy by pushing up the country's oil import bill and widening the trade deficit, analysts say.
India relies on global crude as it imports 70 per cent of its needs. Any price rise sends its oil import bill soaring and pushes up domestic energy costs. Oil prices now are at 26-month highs.
"Also if the conflict is prolonged and Indians are evacuated in large numbers, then it would hurt remittances from the region that total about $12 billion annually," Bhattacharya added.
At the moment, however, India is sitting on the world's seventh-largest foreign reserves of $71 billion dollars, equivalent to 14 months of imports, a sizeable amount of that from Indians in the Gulf sending money home.
Stocks for at least two months
Saumitra Chaudhuri, economic adviser with Indian credit rating agency ICRA Ltd, said a steady rise in crude oil imports in the first quarter of this fiscal year meant India had enough oil stocks for two to three months.
"The impact of the increase in oil prices will not be very much. There might be some marginal impact on inflation in the short-term," he said.
Year-on-year inflation measured by the wholesale price index is running at 3.66 per cent, still way below levels five years ago when inflation was running at six to seven percent.
Analysts also said they did not see an Iraqi conflict and any knock-on effect on the world economy hurting demand or industrial output as the rural sector, which supports 70 per cent of India's population of more than one billion, would keep up the momentum.
"I don't see any adverse impact on overall industrial output or economic growth," said V Raghuraman, analyst at the Confederation of Indian Industry, one of the country's biggest industry lobby groups.
Industrial output growth slowed to 3.7 per cent in November on the year after jumping 6.2 per cent a month earlier as the impact of a devastating drought on the farm sector hit demand.
But most analysts called it a temporary phenomenon and forecast recovery would gain pace in the months ahead.
They cited a slew of data in recent months pointing to recovery in the world's 12th-largest economy despite the drought's impact and a weak global economy.
The economy grew by 5.8 per cent in the second quarter, from July to September, compared with 5.3 per cent a year earlier, making it one of the world's fastest-growing. The government expects the economy to grow by 5.0 to 5.5 per ent in the year to March 2003.
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