Byapaar.com -The Indian Business Blog

Traditionally, import of crude oil has occupied the lion share of India’s import bills and although India has been doing exceedingly well in other sectors in bringing down the trade deficit over the last decade, crude oil has always made Indian balance sheet look bad. Naturally, when the price of crude oil touched a record high of $122 per barrel, Indian government agencies and private businesses have been shivering for fear of a downturn of the whole economy.

Due to fear of inadequate supply of crude oil, its price has been riding fast and almost doubled during last 12 months. The recent hike is a direct result of production disruption in Kenya due to a strike and militant attack. The rising tension between the West and Iran has not helped things either with the world feeling jittery.

The effect is more pronounced in India as there is very little domestic production and India depends on crude oil import for almost ninety percent of its needs. So far Indian consumers have been enjoying a subsidized rate offered by the government and collectively shared by big state firms like Oil And Natural Gas Corporation (ONGC) and Gas Authority Of India (GAIL). It is estimated that the government will shell out as much as Rupess 1550 billion to subsidize the domestic oil market. Private companies dealing in retailing petroleum products are the most sufferers and Reliance has already closed all of its 1430 retail outlets all over the country because they are not subjected to price restrictions and are not entitled to receive subsidy. There is a huge gap of Rupees 8-10 between private retailers and that of public sector companies.

The steep rise in crude oil price has also affected other sectors in the Indian economy. The national currency is weakening and governments plan to restrict burgeoning inflation through strong Rupees has gone away with this latest development.