Oil bill to slow but not reverse India Re rise

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Monday , November 26, 2007 at 1437 hrs Record crude prices of close to $100 a barrel are inflating India's current account deficit and will drag on the rupee, but won't be enough to turn the currency lower in the face of strong investment inflows.

The Indian crude basket -- the mix of imported crude -- has risen 15.5 percent since March and the Government expects the oil bill to go up sharply this year, feeding into the current account deficit and creating a potential headwind for the rupee.

But analysts say the economy, which grew at 9.4 percent last fiscal year, is attracting enough foreign portfolio and direct investment to cover the current account shortfall, even if there is an economic slowdown in the United States.

"The weakness in the US economy will, on the contrary, lead to some of the flows coming into the growing Indian economy once some of the turbulence is settled, because investors need to find avenues for better returns," said Shubhada Rao, chief economist at Yes Bank.

"India is relatively less dependant on global growth, as compared with other economies in the region."

The rupee has gained about 12 percent against the dollar so far this year making it Asia's best-performing currency after the peso, fuelled by a wave of capital coming into Asia's third-largest economy.

The currency was trading on Monday around 39.7 per dollar, just off 39.16 struck earlier this month, which was its highest level in nearly a decade.