For every $10 per barrel increase in oil price, inflation in India rises by about 49 basis points (bps), or pushes up the fiscal deficit by 43 bps, if the government decides to absorb the entire price shock, according to a staff study of the Reserve Bank of India (RBI).
One basis point is a hundredth of a percentage point. The study, although not an official document of the central bank, assumes significance in the wake of the significant flip flop in oil price and the policy challenges it introduces.
The researcher duo, Saurabh Ghosh and Shekhar Tomar, of the RBI’s Strategic Research Unit, showed that that an increase in crude price worsens the current account deficit (CAD) to an extent that cannot be compensated through a higher gross domestic product (GDP) growth.Read More
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