Impact of increasing oil prices on Indian Economy
For any economy to prosper and grow, the energy
sector plays a key role. There are many different
sources of energy such as crude, natural gas,
hydroelectric, coal, nuclear, solar and wind. Crude is
widely used as a source of energy. Fuel sales attract
central as well as state taxes apart from the refining
cost. Taxes on fuel is the biggest contributor to
state treasuries.Therefore neither the State Govt
nor Central Government would like to reduce their
revenues.India is one of the largest importers of
crude oil in the world. More than 80% of India's
crude requirements are met through imports. As a
result, any rise in crude oil prices will directly
increase India's spending, negatively impacting the
country's fiscal deficit. The amount of money
borrowed by the government to finance its
expenditures is known as the fiscal deficit. Any rise
in fuel prices has a direct impact on the Indian
Rupee. If the crude prices remain high, the value of
the Rupee depreciates, thus impacting both the
Indian economy as well as the stock markets.Crude
is primarily used for the generation of power and
fuel for vehicles. Any increase in demand would
lead to an increase in price, which would exert
immense pressure on foreign reserves Oil is an
essential raw material used in a variety of
industries. rise in the price of crude oil implies a rise
in the cost of manufacturing products Fuel price is
a politically and socially sensitive issue. We have
seen governments being have seen governments
being dismissed and increasing shutdowns due to
the increase in fuel prices. In conclusion, despite
global fuel prices softening for the majority of 202021, the benefit was not passed on to the Indian
consumers. With the economy expected to bounce
back with a V-shaped recovery, the fuel demand is
expected to rise, forcing global crude producers to
increase production to meet the increased demand.
The Indian government would have to reduce the
taxes to keep the fuel price in check and in turn,
reduce the burden on the consumers.
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