'Future rise in oil prices may impact economy'

Singapore, Sep 19: India's economic growth will be decided by the manner in which oil prices behave in future, rating agency Standard&Poor's said here today.

''India's recent record of high growth and benign inflation has occurred despite a persistent rise in international oil prices.

Although this is indicative of the Indian economy's resilience to high oil prices, the prospect of the country withstanding a potential oil shock will hinge on how oil prices behave in the future.'' Mr Subir Gokarn, Chief Economist of CRISIL and contributing author of a study on the Indian economy said.

The agency carried out studies on how the future rise in oil prices will affect India, China and Japan and observed that the degree and focus of any impact may vary as per the respective strengths and weaknesses of the three countries.

Oil prices, which flared up recently due to the conflict between the Israeli military and Hezbollah guerrillas in Lebanon, have since fallen from their peak levels. The geopolitical situation in the West Asia, however, may change abruptly.

In the report on China, the agency said, ''China is vulnerable to very high oil prices on account of its developing economy and high-energy needs. The effect of a sharp increase in oil prices, however, would not be readily apparent due to the country's extensive distortions and price controls.'' Although these distortions limit the pass-through effect of high oil prices, they also prevent the economy from adjusting efficiently, it added.

In the report on Japanese economy, Standard and Poor's said, ''Having learnt its lesson during the oil shocks of the 1970s, Japan is now better prepared to weather another serious spike in petroleum prices than are most other developed countries.'' According to a series of econometric simulations carried out by the agency Japan's economy would experience a comparatively minor dip should oil prices linger at about 100 dollars per barrel over the next two years. ''Even an extreme case of 250 dollars a barrel would not seriously impair its domestic economy,'' it observed.

UNI