Business News | Every USD 10 Rise in Crude Above USD 70 Could Shave 0.25 Percentage Points off India's GDP Growth: PwC's Ranen Banerjee
Get latest articles and stories on Business at LatestLY. Sustained high crude oil prices could reduce India's GDP growth by around 0.25 percentage points for every USD 10 increase above a baseline of USD 70 per barrel, while also widening the current account deficit (CAD) and adding to inflationary pressures, Ranen Banerjee, Partner and Leader, Government and Public Sector (GPS), PwC India, told ANI in an exclusive interview.
New Delhi [India], October 28 (ANI): Sustained high crude oil prices could reduce India's GDP growth by around 0.25 percentage points for every USD 10 increase above a baseline of USD 70 per barrel, while also widening the current account deficit (CAD) and adding to inflationary pressures, Ranen Banerjee, Partner and Leader, Government and Public Sector (GPS), PwC India, told ANI in an exclusive interview.
Banerjee said elevated crude oil prices pose a significant challenge to India's macroeconomic stability, with their impact extending across the broader economy, including inflation, corporate input costs and consumer demand.
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"The high crude prices are a challenge for the Indian economy, and they kind of trickle down to various segments of the macroeconomy as well as the real economy," he said.
Highlighting the impact on economic growth, Banerjee said, "For every $10 increase in crude prices above a base case of $70, there is an impact of about 0.25% on GDP growth."
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He noted that while crude oil prices are currently around USD 115 per barrel, the average could remain in the range of USD 90–100 over the period.
According to Banerjee, if elevated oil prices persist until March, the annualised impact could translate into a reduction of around 0.25 percentage points in GDP growth for every USD 10 increase above the USD 70 baseline.
However, he said India's GDP growth could still remain around 7 per cent in the current financial year despite elevated crude oil prices, as the full impact would materialise with a lag.
"GDP growth landing at around 7% even with oil prices being high in this fiscal year is quite possible, and I don't see the RBI trimming the forecast now because the impacts will come with a little bit of a lag, and we are already in October," Banerjee told ANI.
He added that the immediate impact on economic growth may not be severe, given the limited period remaining in the financial year.
However, Banerjee warned that India's current account deficit could widen due to the rising crude oil import bill, alongside geopolitical disruptions affecting exports.
"If I take crude oil prices at about $90 and consider a six-month period, then we could look at about $15–20 million of extra load on the current account, which translates to about 0.5% of GDP," he said.
He noted that India's exports have remained resilient despite geopolitical disruptions but could have grown faster in the absence of such challenges. Meanwhile, higher crude oil prices are increasing the value of imports, adding pressure to the current account deficit.
On inflation, Banerjee said sustained high crude oil prices could add around 30–40 basis points to inflation, although consumer price inflation has remained relatively muted as the government has not passed on higher fuel costs to consumers.
However, he highlighted that wholesale price inflation has already reached the 11–12 per cent range and could rise further if elevated input costs persist.
He warned that companies' ability to absorb rising input costs without passing them on to consumers would become increasingly difficult.
If companies begin passing on higher costs, households could face increased expenditure on essential goods, affecting discretionary consumption and overall demand.
"So, high oil prices actually percolate throughout the economy, even though pump prices for fuel have not increased. So yes, it's a worrying thing for the Indian economy," Banerjee said.
Commenting on geopolitical risks, Banerjee said disruptions in the Strait of Hormuz had already raised concerns over global energy supplies, while emerging risks around the Bab el-Mandeb Strait could further threaten oil shipments.
"So when Hormuz was disrupted, we were always worried about what would happen if Bab el-Mandeb also got disrupted. Now we know that it has also come under stress, the supply through Bab el-Mandeb is under risk," he said.
However, Banerjee expressed optimism that economic pressures could encourage oil-producing and oil-consuming countries to pursue diplomatic solutions to the ongoing conflict.
"We know that economics always trumps politics, and economics would push many of the oil-producing countries as well as many of the oil-consuming countries to get into diplomatic channels towards a solution to the conflict," he said.
He added that releases from emergency oil reserves have provided short-term support to global supplies, while concerns about slowing global economic growth and weaker oil demand growth have also constrained further price increases.
Banerjee suggested that crude oil prices may have already approached their upper range of USD 115–120 per barrel, with the possibility of a downward trajectory as diplomatic negotiations and economic realities encourage countries to resolve conflicts or reach arrangements that allow oil supplies to flow.
"So I think the $115–$120 range is where it has almost maxed out, and there can only be a downward trajectory from here as diplomatic channels and economic realities push countries towards resolving conflicts or at least having some truce or arrangements that allow oil flows," he said. (ANI)
(The above story is verified and authored by ANI staff, ANI is South Asia's leading multimedia news agency with over 100 bureaus in India, South Asia and across the globe. ANI brings the latest news on Politics and Current Affairs in India & around the World, Sports, Health, Fitness, Entertainment, & News. The views appearing in the above post do not reflect the opinions of LatestLY)