The surge in crude will increase fuel costs by about 50 per cent

- Policymakers are concerned about how long the current uncertainty will last

Sanctions on Russia have affected crude supplies. India imports 5% of its total fuel requirement. The share of the country's fuel imports in GDP is the highest compared to other major economies. A decade ago, the ratio reached an all-time high of 7%. But before covid it has dropped to just four per cent and less than three per cent during the epidemic.

If current prices remain the same, the ratio could rise again to 5 per cent. The country's 12-month crude oil imports currently stand at 1.3 billion barrels, up from 1.3 billion barrels before the fall in demand due to covid. If the economic output in the next financial year is 10 per cent higher than the previous year, net oil imports could reach 1.5 billion barrels. Oil prices have also risen above the level of December 2021. That means an additional burden of about ડો 20 billion on this front as well. However, this is only part of the effect. The prices of other forms of condensed energy such as gas, coal, edible oil and fertilizers have also gone up. This is because Russia and Ukraine are also net suppliers of these commodities. At current prices, India's imports of these commodities could increase to 20 billion. That means the total fuel import burden could rise to ૦૦ 100 billion, about three percent of GDP. Much of the discussion on fuel is based on its effect on inflation and liquidity, while also having a negative impact on production.

First, the high cost of energy, once delivered to consumers, will change the consumption of locally produced goods and services, which will affect GDP. Because the price of goods increases with the domestic supplier. The government can provide relief by reducing fuel taxes, reducing tariffs on import duties and increasing fertilizer subsidies. Despite government intervention, fuel costs will rise by about 50 per cent, reducing consumption, and economic activity around the world is linked to its use.

High fuel prices and geopolitical uncertainty could affect global demand. When the price of crude oil was 50 per barrel, the global market for crude oil was 3 trillion. At ૨ 150 a barrel, the market size will increase to ૪ 2.3 trillion, and oil consumers will pay producers Rs. Will pay an additional amount of Rs 1.5 lakh crore. Given the sudden rise in oil prices and future uncertainties, manufacturers are unlikely to spend this windfall on new investments. The shock of oil prices will have an impact on global demand.

How long the current uncertainty will last is also a major concern for policy makers. These changes will push India's balance of payments from a rational surplus to a large deficit. The exit of foreign portfolio investors is also worrisome. The current account deficit is so large that if fuel prices remain high for a year, the rupee will weaken further against the dollar.