Boost energy security to 'oil-proof' Indian economy from adverse geopolitical effects, urges RBI paper

 

The paper stresses the need for a policy to promote energy security and sustainability.

As recent geopolitical events continue to impact global crude oil prices, the Reserve Bank of India has stressed the need to 'oil-proof' the Indian economy. An RBI working paper released earlier this week stressed the need for a policy to promote energy security and stability in an oil import-dependent economy like India. The report found strong statistical evidence to back the possibility of extreme volatility in global crude oil prices in sectoral indices of Indian stock markets.

“The need for oil-proofing the Indian economy – its financial and real sectors, from shocks or adverse geopolitical events cannot be overstated. This underscores the need for a policy to promote energy security and stability. also points out ... it would be prudent on the part of regulators to be vigilant against possible contagion from global crude oil price volatility given their cascading implications for systemic financial stability," the report said. stated in.

The working paper called for rapid investment in other alternative energy sources where India can become self-sufficient.

Using a non-time-varying time frame, the paper attempts to measure the contagion effect of extreme changes in global crude oil prices on 10 composite sectoral indices of Indian stock markets. Simply put, the 'contagion effect' refers to the potential spread of an economic crisis or boom to different sectors.

“Of the two excesses of oil – positive and negative, the contagion effect of positive oil excess dominated not only as indicated by the higher magnitude of positive coefficients, but all 10 as compared to seven in the case of negative oil. Regional stock indices were seen to be affected. Exceeding," the paper said. Exceeding is the action or fact of exceeding something, especially a limit or standard.

The findings suggest that there may be other factors that may indicate a higher and more widespread transition on regional stocks in the Indian market - the case being the INR/USD market.

"Given India's import dependence on crude and the observed co-excessiveness, any downside risk could lead to a decline in stock market capitalization and loss of money for investors," the paper said.

The paper titled 'Measuring the Transmission Effects of Crude Oil Prices on Regional Stock Price Indices in India' however only partially examined the asymmetric aspect of the contagion effect on sectoral indices.