New Delhi: The Planning Commission has warned that rising oil prices could retard the country's growth by upto 1 per cent and suggested that the Government would have to re-orient appropriate monetary and fiscal policies to offset the same.
"Simulations with macro-models suggest that if oil prices increase sharply in future, our growth rate could be lowered between 0.5 per cent to 1 per cent below the levels projected with present levels of oil prices," the Commission observed in the draft approach paper to the 11th Plan.
Stating that all such estimates had a large margin of error, the plan panel said even these simulations show that with appropriate oil pricing policies, increased exports and appropriate fiscal and monetary policies, the adverse impact of high oil prices on GDP growth could be substantially moderated in the medium term.
These measures would have an impact on affordable levels of consumption but they need not have as sharp an impact on GDP growth, it observed.
It is difficult to predict what would happen to oil prices in the next five year period but current assessment suggest that oil prices would remain high, the plan panel said and pointed out that this would exert contractionary pressures on the economy, both directly and also through their impact on world economic growth.
"The impact of high oil prices on the world economy is some what muted thus far partly because industrialized countries have been more able to adjust to higher oil prices but, as pointed out above, there are macro-imbalances in the world economy which make it vulnerable," the Commission observed.
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