Oil Price Transmission Mechanism in India

India imports over 85% of its crude oil requirement, making it highly sensitive to global crude price movements. The impact of oil price increases passes through the economy via multiple channels: (1) direct — fuel prices raise transportation and industrial input costs; (2) indirect — fertiliser and power costs rise, feeding into food inflation; (3) fiscal — if the government caps retail fuel prices, OMCs (oil marketing companies) book under-recoveries, straining public finances; (4) external — higher oil import bill widens the current account deficit, weakening the rupee.