According to the International Monetary Fund (IMF), the impact of higher oil prices on India’s gross domestic product may not be all that much this year and the next.
Consider the accompanying Chart 1, taken from IMF’s recently published World Economic Outlook. It shows India’s terms-of-trade loss as a percent of GDP over 2018-2019 at 0.18%, much lower than the 1.5% loss seen in 2017. The loss, of course, is due to a rise in oil prices. Conversely, when oil prices fell in 2015 and 2016, India had large windfall gains of around 4% of GDP.
IMF estimates dated Brent crude oil price to average $64.6 a barrel for 2018, up 19% over 2017. Many seem to be working with similar price assumptions. Kotak Institutional Equities’ estimates for calendar year 2018 are 20% higher year-on-year (Chart 2). The Reserve Bank of India’s (RBI) baseline scenario assumes crude oil prices (Indian basket) to average around $68 a barrel in FY2019. Read More