India’s oil import bill has increased 40% to a record $140 billion (R770,000 crore) in 2011-12 as high oil prices shaved off much of the nation’s GDP growth rate, petroleum and natural gas minister S Jaipal Reddy said on Wednesday.
Speaking at the 5th OPEC International Seminar in Vienna, Reddy said it was “estimated that a sustained $10 increase in oil prices lead to a 1.5% reduction in the GDP of developing countries”.
“We have seen evidence of this in our own country: India’s GDP grew at 6.9% during the last financial year (2011-12) down from the 8% plus growth rate experienced in the past few years,” he said.
Reddy said between the 2010-11 and 2011-12, the world’s fourth largest oil importer saw its average cost of imported crude oil rising by $27 per barrel, “making India’s oil import bill rise from $100 billion (Rs. 550,000 crore) to $140 billion (Rs. 770,000 crore) .”
“Higher international oil prices lead to domestic inflation, increased input costs, an increase in the budget deficit which invariably drives up interest rates and slows down the economic growth,” he said.
Also, net oil importing countries like India experience a deterioration in their balance of payments, putting downward pressure on exchange rates.
“As a result, imports become more expensive and exports less valuable, leading to a drop in real national income,” he said. “There could not be a more direct cause and effect relation than high oil prices retarding economic growth of oil importing countries,” he said.