Rising oil prices may hit growth

New Delhi, Oct 28 | Updated: Oct 29 2004, 05:45am hrs
Admitting that rising oil prices were becoming a cause for major concern, finance minister P Chidambaram said a hike of every $5 per barrel pulls down GDP by 0.5%. He said the abnormal hike in prices could be due to building of inventories by a few countries.

It is possible that some countries and companies are increasing their inventories of oil. It is also possible that oil producing countries are exploiting the situation and raising the prices, he said.

If oil prices continued to remain high, it would affect the growth rate of the developing countries while fueling inflation, he said.

The finance minister said this in turn would impact developing countries.

It will rob developing countries, like India, of a critical percentage of their potential growth, he said. He further added: In fact, every $5 dollar a barrel increase in oil prices affects our GDP by nearly 0.5% and also contributes to inflation.

Mr Chidambaram added that though the demand supply gap had narrowed, there was a small surplus on the supply side.

Even if the demand has risen especially from countries like China and India, there is no justification for any price beyond $35-40 a barrel, the minister said, adding that he held talks on the issue with various global investment communities and World Bank officials.

However he said, though prices are beyond control, we must find innovative ways to cut costs.