Q. Which of the following show the impact of fuel price rise on Indian economy?
1.Fall in value of rupee
2.Fall in current account deficit
3.Lower discretionary spending
Which of the statements given above is/are correct?
Answer: C
Notes:
Higher fuel prices take a toll on the consumer. Rise in fuel prices may eat up a major portion of income and they also lead to inflation. Hence, there is a reduction in discretionary spending.
The rise in oil prices make the situation worse for the government as well. Every $10 increment leads to an increase of about $10 billion in current account deficit. Rising oil prices also reduce the GDP by about 0.5% for every $10 increase.
Also as India is largely dependent on import for its fuel requirement , it will improve the import bill of the country. Increase in current account deficit (CAD) will have a negative impact on the value of rupee.
Source- Article
