Petroproduct price hike to push inflation to 7-7.5 p.c.: Crisil

MUMBAI, SEPT. 28. An ensuing 10-20 per cent hike in administered prices of petroproducts plus an increase in freight rates and cost of production of industrial goods would lead to an average inflation of about 7-7.5 per cent, according to the Credit Rating Information Services of India (Crisil).

A sustained firmness in the international oil prices at the current level would exert considerable pressure on the trade account, the rating agency said in ``Oil prices - Crisil's assessment of the impact on India's economy" here today.

``If international price stays at $30-32 a barrel, the oil import bill will increase to around $17.6-18.8 a barrel", the rating agency has analysed.

Crisil expects the trade deficit to rise sharply to around $15-16 billion in 2000-01, as compared to $9 billion in 1999-2000.

A large trade deficit along with routing of a significant portion of oil payments would pressurise the forex reserves of Indian economy and depreciate the rupee against the dollar, it said.

``The potential dip in the forex reserves is estimated to be $6.6-8 billion, assuming that around 60 per cent of the oil import bill will be routed through them", Crisil has assessed.

However, the rating agency maintains that an estimated $4-4.5 billion inflow into India through foreign direct investment and institutional as well would be sufficient to contain the depletion in the reserves up to some extent. Further, the planned overseas bond issue was expected to garner around $2-5 billion, it says.

The agency expects the rupee exchange rate against U.S. dollar to be Rs. 46.50-46.70 by March-end in 2001.

``The depreciation will push the price of capital goods and raw materials and cost of production in cement, fibre, petrochemicals and paper is expected to increase with higher freight and power costs", Crisil said.

- PTI

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