Abstract: The crude price shock in the 1970s sent many economies tumbling down for almost a decade. Four decades later, this shock can still jeopardise those economies which are primarily dependent on crude imports. This study looks at the quantitative impact of crude price shock on India’s three major macro-stability indicators: current account deficit (CAD), inflation and fiscal deficit. We find that if a crude price shock hits the Indian economy, the CAD to GDP ratio will rise sharply irrespective of a higher GDP growth; and a 10 USD/barrel increase in oil price will raise the inflation by roughly 49 basis points (bps) or increase the fiscal deficit by 43 bps (as a percentage of GDP) if the government decides to absorb the entire oil price shock rather than passing it to the end users.
Media Coverage: Business Standard, The Wire