Cost of Oil
The eqn for the cost of oil is:
Cost per barrel x no. of barrels consumed per day x 365
India's oil consumption: 4 million barrels per day
Cost per barrel: $60
Total oil cost per day: $240 million = $0.24 billion per day
Total cost per year: $87.6 billion
If we assume the no. of barrels to be constant then, cost per barrel is the only variant in the above equation and that would decide the total cost.
So a $1 increase in the barrel price would mean an additional 4 million x 365 = $1460 million = $1.46 billion dollars
Similary a $10 increase would mean an additional $14.6 billion dollars of burden on our GDP.
India's GDP = ~30,00,000 crores of rupees = ~30,000 billion rupees = ~$700 billion
Percentage share of oil consumption in GDP = 87.6/700 = ~12.5%
That means if we were to import all the oil that we are consuming, we'd be spending around 12.5% of our income on oil expenses alone.
But, since we are importing "only" 70% of our oil requirements we are spending nearly 8.5% of our income on oil.
Average growth rate of India = ~9%
So, ideally next year the GDP should be $700 billion x 9% =~ $763 billion
But, if there is around $15 increase in the price per barrel, even with the same consumption levels, the additional burden would be,
15 x $1.46 billion = $21.90 billion.
This means that instead of a GDP of $763 billion, India will clock only $763 - $21.9 = $741.1 billion which would mean that the growth rate would be,
(741.1 - 700)x100/700 = ~6 %
All the glitter about India shining would suddenly appear dim...People will now have to give serious thought about the reality.
This story is not necessarily true for India alone, but the gloomy picture is all the more relevant to every country in the world which are highly dependent on oil.
Cost per barrel x no. of barrels consumed per day x 365
India's oil consumption: 4 million barrels per day
Cost per barrel: $60
Total oil cost per day: $240 million = $0.24 billion per day
Total cost per year: $87.6 billion
If we assume the no. of barrels to be constant then, cost per barrel is the only variant in the above equation and that would decide the total cost.
So a $1 increase in the barrel price would mean an additional 4 million x 365 = $1460 million = $1.46 billion dollars
Similary a $10 increase would mean an additional $14.6 billion dollars of burden on our GDP.
India's GDP = ~30,00,000 crores of rupees = ~30,000 billion rupees = ~$700 billion
Percentage share of oil consumption in GDP = 87.6/700 = ~12.5%
That means if we were to import all the oil that we are consuming, we'd be spending around 12.5% of our income on oil expenses alone.
But, since we are importing "only" 70% of our oil requirements we are spending nearly 8.5% of our income on oil.
Average growth rate of India = ~9%
So, ideally next year the GDP should be $700 billion x 9% =~ $763 billion
But, if there is around $15 increase in the price per barrel, even with the same consumption levels, the additional burden would be,
15 x $1.46 billion = $21.90 billion.
This means that instead of a GDP of $763 billion, India will clock only $763 - $21.9 = $741.1 billion which would mean that the growth rate would be,
(741.1 - 700)x100/700 = ~6 %
All the glitter about India shining would suddenly appear dim...People will now have to give serious thought about the reality.
This story is not necessarily true for India alone, but the gloomy picture is all the more relevant to every country in the world which are highly dependent on oil.
Comments