Will oil prices derail the Indian economy?

Could soaring oil prices wreck short-term growth prospects? The pessimistic view is that it can - especially because it comes on top of troubled conditions in international financial markets.

Not so, methinks- and I said as much in my ET column, Please, this is not the 90s economy.

• First, I don't buy the proposition that prices above $125 are here to stay. The imbalances in oil supply and demand are very small - and feverish speculation is at the root of the present spike. Saudi Arabia's decision to step up oil output in response to President Bush's plea will have the necessary softening effect.
• Oil prices of around $100 are not a big deal for the world economy- in real terms, these would be close the peak of the seventies. But the developed world is far more energy efficient today than i the seventies.
• A high inflation- high interest rate cycle putting the brakes on India's economic growth is unlikely. Inflation will moderate in the months to come. Interest rates have risen but, in real terms, are way below those in the nineties.
  
• The structural characteristics of the Indian economy are far superior to those of the nineties, so the chances of a lapse into a 6-7% growth band are negligible.
• The prospects of the international financial market crisis receding are brightening by the day- the latest addition to the ranks of the optimists is Fitch, the credit rating agency. Ftich estimates total losses on account of the crisis at $400 bn, with banks accounting for half of this. Of the total $200 bn in estimated losses, banks have already provided for $160 bn.