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5) India is still vulnerable to the twin account deficits on account of increase in oil prices. Discuss.(250 words)

Topic- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

5) India is still vulnerable to the twin account deficits on account of increase in oil prices. Discuss.(250 words)

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Why this question

Many oil producing nations have been witnessing tumultuous politics and it has an important bearing on India which imports most of its oil needs. In this context it is important to discuss why India is susceptible to twin deficit shocks due to oil price increase.

Directive word

Discuss- this is an all-encompassing directive which mandates us to write in detail about the key demand of the question. we also have to discuss about the related and important aspects of the question in order to bring out a complete picture of the issue in hand.

Key demand of the question.

The question wants us to write in detail about India’s dependence on oil imports and why it is susceptible to twin deficit challenges on account of increase in oil prices.

Structure of the answer

Introduction– write a few introductory lines about India’s oil imports and oil exporting countries. E.g Oil imports constitute around 25 percent of total imports in a year etc.

Body-

Discuss the reasons as to why India is susceptible to twin deficits on account of increased oil prices. E.g

  • India will continue to remain vulnerable to oil price shocks due to its high import dependence.
  • This vulnerability can lead to episodes of sharp increase in the current account deficit and rising GDP growth would be insufficient to counter it.
  • Considering the geopolitical risks surrounding major oil producing countries such as Iran, Qatar and Venezuela, and the threat of Opec (Organization of the Petroleum Exporting Countries) production cuts, stable crude prices are never a foregone conclusion.
  • The Union Budget 2019-20 has expectedly shown a slip in the fiscal deficit, at an estimated 3.4% for the current, as well as the next fiscal year.
  • On the domestic front, such episodes will lead to surge in inflation or fiscal deficit, or both, depending on how much of the increased prices the fiscal authority decides to pass-through.
  • Lower crude prices have enabled the government to charge higher excise duties on petrol and diesel. However, the gains from the excise duties have plateaued as the government has been compelled to roll back the rate of excise in the face of rising crude prices etc.

Conclusion– based on your discussion, form a fair and a balanced conclusion on the given issue.

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