High oil prices will hit growth: study

Crude oil price of $50 a barrel in the international market would pull down India's GDP growth by 0.4 per cent and push up inflation by 1.5 per cent, a FICCI study has said.

"The cumulative impact of a double-digit oil price increase in 2005-06, on top of a 14.9 per cent rise in 2004-05 will be most felt by the manufacturing sector, especially chemicals, transport equipment, textile products, basic metal and non metallic minerals," the study said.

Seventy per cent of India's oil requirement is met by foreign sources.

"The macro impact of high oil prices of $50 per barrel will be 0.4 per cent on GDP growth and push up inflation rates by 1.5 per cent," it said.

FICCI estimates that if oil prices go up to $80 per barrel for a full year, it would pull down GDP by 4.9 per cent and raise the wholesale price index by 7.9 per cent.

A study by Asian Development Bank had pointed out that 50 dollars a barrel price would reduce India's GDP growth rate by 1.5 per cent in 2005.

International Energy Agency had estimated that every 10 dollars increase in oil prices per barrel would reduce India's GDP growth by 1 per cent. That is, an increase of international oil prices from $38 per barrel in 2004 to $50 a barrel in 2005 would push down India's GDP growth by around 1.2 per cent.

"The overall impact of the high oil prices on the Indian economy in the current scenario is also restrained by other factors like the comfortable balance of payment position, the large foreign exchange reserves and access to international capital," the study said.

FICCI estimates that India and China had the lowest oil intensity across most major developing and developed countries. The figure is based on GDP calculated on purchasing power parity basis.

"The oil intensity of the Indian economy has slowed down from 0.05 in 1999 to 0.04 in 2004. This is the same trend as in China, which was identified as another major country with the lowest oil intensity," the study said.

In contrast, the oil intensity in United States was 0.10, while that of Canada was 0.11 in 2003. The developed countries, which have lower oil intensity closer to that of India and China, were Japan, France and Germany where the oil intensity levels were at 0.06 and United Kingdom where it was calculated at 0.05.