High price of crude oil drags global economic growth: Reddy

India's annual average cost of imported crude oil increased by $27 per barrel over the last two financial years (2010-11 and 2011-12) taking country's oil import bill to $140 billion from $100 billion. Petroleum minister opined that a sustained $10 increase in oil prices will lead to a 1.5% reduction in the GDP of developing countries. 

He further stated that higher international oil prices will lead to a domestic inflation, increased input costs and an increased budget deficit, which invariably raises interest rates and slows down the economic growth. Net oil importing countries like India will experience deterioration in their balance of payments, putting downward pressure on exchange rates. Resulting in imports becoming more expensive and exports less valuable, leading to a drop in real national income.