Outrageous oil prices burden Indian economy

Sep 22, 2005 02:00 AM

"Outrageous" international oil prices are burdening India's budget as the nation struggles to protect its booming economy, the country's Finance Minister said.
India's economy is expected to grow by 7.1 % in terms of its gross domestic product (GDP), according to recently updated International Monetary Fund's figures. But speaking at an investment forum in New York, Minister Palaniappan Chidambaram said the rising cost of energy was taking a toll on India's finances as the country had to put aside "huge" resources to avoid passing the full impact of the rise to its customers.

The oil sector "is one sector that has caused us various problems. In my view, the prices of oil are outrageous," Chidambaram said.
"We have no control of oil prices, but oil prices are dampening growth rates in developing countries... even in developed countries," he added. Oil prices have increased by over 50 % so far in 2005, boosted by high demand, refining bottlenecks and more recently by the impact of Hurricane Katrina as well as expectations for possible more damages as Hurricane Rita approaches the Gulf of Mexico oil installations.

US crude oil prices jumped 70 cents to $ 66.90 per barrel as Hurricane Rita threatened output in Texas' refineries. The rising cost of energy "is casting a huge burden in our oil companies and in the budget. We are not able to pass through the entire price increase to our customers," he added.
Early in September, India -- which imports 70 % of its oil needs -- increased by about 7 % gasoline and diesel prices, the second similar rise in a year.

Analysts said the move would push up India's inflation and put pressure on the central bank to raise interest rates, but only mildly affect oil demand in Asia's third biggest economy.
The Minister said that currently around 13 % of the increase in global oil prices is being passed on to customers.
"Purist economists will say 'pass through the price', but that will cripple many many segments of India's industry, which uses diesel (...) cooking gas," he said.

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