The economists expect a 0.5% impact on India’s GDP due to higher crude prices assuming that the 10% rise in the commodity’s prices.
“It all depends on how long this war will last. If it is long drawn, there will be an impact on growth because of issues linked to supply, then there will also be an impact on the external trade and exports,” said Madan Sabnavis, chief economist at Bank of Baroda.
The bank still expects the rupee to trade in the Rs 91 per dollar to Rs 92 per dollar band.
On Friday, the rupee ended at 91.74/$1 on down 14 paise from its previous close of 91.60/$1 depsite strong intervention by the Reserve Bank of India in both the spot market as well as the offshore non deliverable forwards market. It had sunk to a record low of 92.30/$1 on Wednesday due to heightened pressures from the geopolitical crisis.
For India which imports more than 89% of its crude, the supply disruption could impact not only the financial markets but also the real economy, particulary as 60% of India’s crude passes through the Gulf of Hormuz which has been blocked due to the current situation.
Earlier this week, the government clarified that India has sufficient stocks of crude oil and energy products (petrol and diesel) for the next 25 days each, cumulatively accounting for 50 days of sufficiency.Higher crude oil prices will also impact the country’s current account deficit and also through like higher fertilizer and petroleum subsidies.Impact will also be felt on refined petroleum of which 13.7% are exported to Gulf countries.
Remittances from the region into India and also withdrawal of foreign portfolio inflows into the country will also be some other second order effects to be watched out for, Bank of Baroda said.