Econintersect: India is caught in the vice of high inflation and slowing growth. Now an added burden on the struggling sub-continent economy is declining oil and gas production. Natural gas production in February 2013 was 20% lower than a year ago. The government had a target of 3.19 billion cubic meters; production came in at 2.88 billion cubic meters (9.7% shortfall). A similar decline and shortfall for crude oil production was also reported. India imports about 80% of its crude oil requirements.
Click on picture for full field view of oil well at Rajasthan Block at About Oil.com.
India has been importing significant oil from Iran because of an exemption it has (along with China) from the UN sanctions against the Tehran government. But there are still problems associated with those sanctions which may curtail Indian importation. From About Oil.com:
On the imports side, the country could end its crude oil imports from Iran due to Western sanctions that could make it impossible for refineries to obtain insurance, as reported by Reuters. “If cover is not available then all Indian refiners will have to halt imports from Iran or else they will have to take a huge risk“, P.P. Upadhya, managing director of Mangalore Refinery & Petrochemical, told Reuters.
The falling domestic energy production is contributing to a record current account deficit for India. The negative balance of trade has pushed the current account deficit to 6.7% of GDP. The current account deficit has grown by 60% year-over-year for 4Q 2012, most of that occurring from Q3 to Q4. This continues to put pressure on the value of the rupee, which has fallen 25% against the U.S. dollar since late 2011.
The recent decline in real GDP growth for India is shown in the following graph from Trading Economics. The growth rates are percent annual rates.
While all this is going on inflation in India remains stubbornly high at 6.84% year-over-year for the latest CPI (Consumer Price Index), February 2013.
Sources:
- A decline in Indian oil and gas output (Lina Roger, About Oil, March 2013)
- India’s current account gap at record 6.7% of GDP (Reuters, Arab News, 29 March 2013)
- India’s Economic Growth Eases More then Expected in Q4 (Anna Fedec, Trading Economics, 28 February 2013)
- India Inflation Rate is Up to 6.84% in February (Anna Fedec, Trading Economics, 14 March 2013)
