Skip to main content

Effects of Higher Crude Oil Prices on India

India is the 10th largest oil importing nation in the world (oil imports are close to 70% of its crude oil requirements). If the average price of crude oil for FY09 is $105 / bbl, then, it will result in the FY09 trade deficit coming in at US$115bn.

According to Citi,US$1/bbl increase in oil prices results in the trade deficit widening by US$700mn. Therefore, assuming a US$15/bbl increase in the Indian basket to US$120/bbl, the import bill would rise by an additional US$10.5bn, taking the CAD to US$47.3bn or 3.6% of GDP.

To be in-line with international trends, auto fuels need to rise 18% for petrol and 43% for diesel.However given political compulsions, this is unlikely to take place. As far as the fisc is concerned, to compensate the oil marketing companies for the under-recoveries, the government is likely to issue oil bonds to the tune of Rs630bn in FY09.

How much LPG, Kerosene, Diesel and Petrol Contribute to Inflation ? See Chart below.
crudeoilindia


Overall, if the above fuel prices are changed to be in-line with international prices, they will contribute 4.70% to Inflation and the Government can never do this but burn deep hole in its own pocket. Additionally, the Indian Rupee is expected to become weaker on account of higher deficits.

Popular posts from this blog

Historical Sensex Returns Updated - 2024

Historically Sensex has given returns of about 15% per year, despite volatility and price fluctuations of about -20% to +60%. The following table shows S&P BSE Sensex historical data - start  & close values and the yearly returns of the sensex from 2000 to 2024. So far during the year the   index has hit an all-time high of  75,124   and despite markets hitting all time highs not all stocks make all-time highs. There are many stocks still below their highs. Stocks like HDFC Bank, ITC, Asian paints are still well below their highs and some of them have given low returns over last 3-5 years. Individual or Retail investors can achieve consistent returns through investing via mutual funds , whether it be active or passive. Chasing returns from individual stocks is futile. Be a wise investor !

Walmart and Costco Selling Gold and Silver

Costco Wholesale and Walmart are both starting to sell gold bars. First, Costco sold gold bars to its members looking to invest in more than bulk household purchases. Now the warehouse retailer is selling silver coins too. Walmart has also started selling precious metals such as gold and silver in its online store, following in the footsteps of Costco Wholesale. Against the backdrop of high inflation, gold has become the new favorite of American consumers. The value of gold and silver is expected to continue to climb in 2024 on expectations that the Federal Reserve will start cutting interest rates. Gold currently trades at $2255. Will Indian supermarkets sell gold?  Gold has been always been one of the favorite investments for Indians, as evident from the fact that Indian households hold over 21,000 tonnes of gold. Indians prefer to buy gold jewelry and this trend could change if Gold is sold in supermarkets. There are Gold ETFs and Sovereign Gold Bonds  (SGB) as well. Addi...