Budget 2018: Rising crude oil prices could pose problems for the economy, chief economic adviser Arvind Subramanian said on Monday. He listed elevated oil prices as among the several factors that had slowed down growth at a time when the global economy was doing well. The alert comes against the backdrop of a slow recovery in the economy rebounding after the twin disruptions of demonetisation and the GST roll-out.
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The Economic Survey too pointed out that while high-frequency indicators may be moving in the right direction, the level remained below potential. Factory output, for one, grew just 3.2% year-on-year between April and November 2017. Moreover, real credit growth to industry remained in negative territory. Oil prices have risen by about 16% year-on-year, in dollar terms, in the first three quarters of 2017-18. Typically, a $10-per-barrel increase in the price of oil reduces growth by 0.2-0.3 percentage point, increases WPI inflation by about 1.7 percentage points and worsens the current account deficit by about $9-10 billion dollars.