Is the oil price pass‐through in India any different?

Is the oil price pass‐through in India any different?

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Article ID: iaor20127853
Volume: 34
Issue: 6
Start Page Number: 832
End Page Number: 848
Publication Date: Nov 2012
Journal: Journal of Policy Modeling
Authors: , ,
Keywords: petroleum, statistics: inference
Abstract:

In the wake of deregulation of prices of some petroleum products, we estimate the pass‐through impact of international oil prices on the Indian economy. In contrast to global trends, we find evidence of higher pass‐through to domestic inflation and industrial output, particularly since 2002 when domestic prices started to adjust more frequently to international oil prices. We also simulate to obtain the potential full pass‐through impact if prices were completely deregulated and find that such a pricing strategy could result in significant upsurge of inflation with consequential effect on output. On the other hand, staggered adjustments would deteriorate government finances.

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