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Rise in Oil Prices and its effect on the India Economy

Introduction
In dia is a developin g coun try but it is a rapidly g rowin g econ omy. Its econ omy is th e 11th larg est in th e world an d th e 4th larg est by purch asin g power parity. Even th oug h In dia is still sufferin g from poverty, illiteracy an d corruption its prospects are fair as it h as made sig n ifican t prog ress after free market prin ciples were in itiated in 1991. It h as h ad ach ievemen ts in g lobalization an d th e coun tries per capita GDP was listed as 127th by th e In tern ation al Mon etary Fun d (IMF) in 2010 with $3290. By 2008, In dia establish ed itself as th e 2n d fastest g rowin g econ omy with econ omists talkin g about it becomin g on e of th e worlds super powers of th e future. In dia is on e of th e BRIC coun tries (Brazil, Russia bein g th e rest of th e quartet) because of its econ omic g rowth an d prospect of improvin g g lobal econ omic con dition s. From th e years 1947 to 1991, th e policy th at g overn ed In dias econ omy was socio-democratic; th e coun try was severely reg ulated, h ad pervasive corruption , declin in g g rowth an d more public th an private own ersh ip. However, sin ce 1991 th e coun try h as experien ced liberalization an d more of a market-based econ omy. In dia h ad stepped up to th e 21st cen tury with improved reforms an d en h an ced econ omic policy. Un fortun ately, In dia, like oth er coun tries aroun d th e world, was n ot immun e to th e fin an cial crisis of 2007 to 2010. Th e econ omy was crippled with th e effect of th e econ omic down turn in addition to a poor season of mon soon th at In dias climate faces an n ually. In dias GDP fell drastically to 6.7% in th e period 2008-2009 but experien ced a small climb of relief to 7.2% in 2009-2010. Th e fiscal defecit also rose from 5.9 to a soarin g 6.5% at th e same time. Th e coun trys accoun t defecit was elevated to 4.1% of its GDP durin g th e 2n d quarter. Accordin g to th e Labour bureau its un employmen t level was sig n ifican t at 9.4% an d more th an 10% in rural areas wh ere more th an a billion In dian s reside.

Productivity an d In flation in Brief Th e soarin g price of oil is h avin g a major in fluen ce on In dias econ omy. In dia spen ds a lot of mon ey fin an cially supportin g its citizen s with fuel every year. Petrol in In dia is a lot ch eaper th an it sh ould be. However, Oil firms in In dia are still buyin g oil at in tern ation al market value. Th erefore, In dian oil firms are h emorrh ag in g mon ey at $100 million a day. Th ere will be more difficulties faced if th e price in creases an y furth er.

It is un derstan dable th at th e g overn men t is receivin g complain ts to raise th e price of fuel by th e oil compan ies but politically it is an un favorable th in g to do as members h ave to win election votes. Th e political disturban ces in th e Middle East recen tly due to Eg ypt an d oth er coun tries h as in creased an xieties of th e Fin an ce Min ister wh o h as to smooth over con flicts for th e h ome con sumers. Th e question about oil production an d availability h as led to risin g appreh en sion s. Th e min ister spoke out about th e situation sayin g th ey were in touch with th e Petroleum Min istry an d would take steps to settle th e un desirable effect of h ig h en erg y costs on th e public. His reason in g was th at wh en prices reach ed $147 a barrel th at th ey man ag ed th e situation . Political turmoil in Eg ypt h as resulted in crude oil prices g oin g past 100 dollars a barrel wh ich h as led to th e outcome of prin ce in creases in all major oil importin g coun tries like In dia. Hig h g lobal oil prices in crease th e g overn men t fun din g bill an d broaden th e trade decrease as In dia starts importin g much more th an it exports. In dia already imports th ree quarters of its fuel n eeds. State run firms like In dian Oil, Hin dustan Petroleum an d Bh arat Petroleum will bear th e brun t of severe reven ue sh ortag es. In 2010-11, th e un der-recovery of oil firms is estimated to exceed Rs. 700 billion leavin g th e g overn men t to pay th e rest of it as a subsidy. In 2010, g overn men t put in fuel reforms by dereg ulatin g petrol prices an d raisin g prices of diesel, kerosen e an d LPG to cut its subsidies an d fiscal losses. Th e Empowered Group of Min isters delayed a key decision on diesel price dereg ulation due to th e h ig h g lobal price of oil an d h ig h in flation to 8.4% in December from 7.5% in November. Read more at: h ttp://profit.n dtv.com/n ews/sh ow/fm-risin g -oil-prices-a-matter-ofcon cern -g ovt-to-tackle-situation -139025?cp Th e diag ram below illustrates wh at is h appen in g to oil prices aroun d th e world. Recen t even ts of political un rests caused a sh arp declin e in th e g lobal supply of oil. Th is reduction can be illustrated by th e in ward sh ift of th e ag g reg ate supply curve from AS1 to AS2. Th is sh ift causes a n eg ative supply sh ock an d in creases th e equilibrium price from P1 to P2. Th e in crease in price h as h ad a n eg ative impact on all oil importin g coun tries like In dia as see above. Con clusion Sin ce th e past couple of years, In dia h as main tain ed steady an d rapid developmen t an d h as in fused vig or in to g lobal econ omic g rowth . Th e world will be a big factor in its comin g improvemen t as In dia will n ot be able to prog ress with out it. In approximately twen ty years In dia will make h istoric in puts in to developmen t of th e g lobal econ omy by expan sion of foreig n trade an d expan sion an d developmen t in th e west. It will improve its overseas in vestor relation sh ips an d h ave better busin ess outlooks. Overseas in vestmen ts will h ave to be g uided an d supported by competitive busin esses an d h ave to complete complex types of econ omic an d tech n olog ical collaboration with improved quality an d ben efits for both org an ization s. In dia will also h ave to diversity an d in crease its bilateral, multilateral an d reg ion al econ omic assistan ce so th ey can h ave mutual developmen t an d a g lobal strateg y in all coun tries an d reg ion s aroun d th e world. In dias econ omy h as en joyed sustain ed prog ress in recen t times, bein g on e of th e BRIC coun tries. In dias Cen tral Bureau of Statistics released th at GDP g rew by 8.8%, for th e h ig h est quarterly g rowth sin ce 2008. In comparison to th e g lobal econ omies, In dias h as h ad a n ice steady momen tum with less fluctuation s. In dias in formation in dustry h as been th e cause of rapid improvemen t with developmen ts in lan g uag e an d h uman talen t. Th e service in dustry h as taken leaps an d attracted man y in vestors, th erefore leadin g to th e man ufacturin g in dustry g ettin g less focus. In dias g overn men t h as also h ad en courag emen t en deavors th at h ave promoted g rowth . Th ere are still man y h urdles to face before In dias econ omy can reach g reater h eig h ts. Econ omists say th at th ere will be g reat prog ress as well as man y ch allen g es in th e

future. Th e g overn men t, especially h as to start successful policies to cope with an y down falls. Th e most crucial problem faced by th e g overn men t at th e momen t is curren t in flation due to an expon en tially expan din g econ omy. On ly th e passin g of time can say h ow In dias econ omy will adapt to th e in creasin g ly bleak g lobal econ omic climate.

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