New Delhi: The Planning Commission has warned that rising oil prices could retard the country's growth by up to one per cent.
"Simulations with macro-models suggest that if oil prices increase sharply in future, our growth rate could be lowered between 0.5 per cent to 1 per cent below the levels projected with present levels of oil prices," the Commission said in a draft approach paper to the Eleventh Plan.
The panel said using oil pricing policies, increased exports and fiscal and monetary policies, the impact of high oil prices on GDP growth could be substantially moderated in the medium term.
These measures would have an impact on affordable levels of consumption but they need not have as sharp an impact on GDP growth, it observed.
It is difficult to predict what would happen to oil prices in the next five-year period but current assessment suggest that oil prices would remain high, the plan panel said adding that this would exert pressures on the economy, both directly and also through their impact on world economic growth.
"The impact of high oil prices on the world economy is some what muted thus far partly because industrialised countries have been more able to adjust to higher oil prices but, as pointed out above, there are macro-imbalances in the world economy which make it vulnerable," the Commission said.
For India, the persistence of high oil prices does pose difficult choices between passing on the price increase to the consumer, lowering taxes on petroleum products or squeezing the oil companies, the commission observed.
But each of these options is fraught with negative consequences and the government has resorted to a negative combination of all three in the past 12 months, it warned.
In the medium-term, the only viable approach is to rationalise taxation on petroleum products and then pass on the bulk of the burden of higher oil prices to consumers with targeted subsidies to protect the interests of the poor, it suggested.
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