Rising world prices of crude oil, food will hurt India most: ADB

After dipping for four successive quarters, the bad news for GDP growth in India is that the decline is set to continue, says a report. Rising global food and oil prices are projected to dent growth more in India than in any other Asian economy, including China, Malaysia and Indonesia, in the coming year.

According to an Asian Development Bank (ADB) estimate, which assumes a combined 30 per cent increase in global food and oil prices in 2011, the resultant inflationary pressure could knock off well over three quarters of a percentage point from India's growth this year and another 1.25 percentage points in 2012.

The projected hit on India's growth in 2012 is the highest for any major Asian economy included in the study.

Since August 2010, food prices have risen between 10 per cent and 35 per cent in various countries, while crude oil prices have increased by 45 per cent over the past year.
The ADB uses the Oxford Economics Global Model to assess such impacts. The model generates projections of key economic variables, based on the assumption that monetary authorities in the region will adopt a gradual tightening stance in the next two years as recovery takes firm hold. The key assumption is that global prices of food as well as benchmark Brent crude oil rise by 30 per cent in 2011 and fall moderately in 2012.

For India, the projected food and oil price surge this year is expected to take a bigger toll on growth vis-à-vis China, both during 2011 and in 2012. The data point to a bigger hit on India's GDP next year on account of the global inflationary trend, as is the case with most major economies where Manila-based ADB has used the Oxford Economics Model to project growth, the report says.