Accessibility links

South Asian Economies Face Pain of High Oil Costs

Surging crude oil prices are expected to hurt the economies of South Asia, particularly the smaller ones.

Angry consumers in Sri Lanka are coping with price hikes on many fronts, bus fares, oil and food grains, electricity rates, cigarettes and alcohol.

The price rises have triggered several protests. But the government says Sri Lankans will have to shoulder the burden of escalating living costs triggered by high global crude oil prices.

The country is seeking credit from India and Iran to finance its rising oil bill.

In Pakistan, rising fuel prices and food costs have driven inflation to a six-year high.

Bangladesh also is coping with rising energy costs.

In a region that depends almost completely on oil imports, economists say the damage from rising crude prices could be severe, except in India.

T.R. Bhaumik is a South Asia specialist at the Confederation of Indian Industry. He says India's foreign reserves of over $100 billion provide a cushion, because the government can subsidize consumer oil costs. Other South Asian countries do not share that advantage.

"India is almost a stand-alone case, but the rest of the South Asian economies have a very critical future facing them," he said. "Their economies are going to see a severe setback, particularly the manufacturing sector, which had just started showing some kind of growth momentum. Even agriculture will suffer to the extent that agriculture consumes diesel."

Economists say the manufacturing industry in countries like Sri Lanka and Bangladesh will become less competitive. Exporters may be the hardest hit if high oil prices persist. The impact will be particularly severe on a region that houses the largest number of poor people in the world.

In India, the government is holding off on dramatic price rises for fuel, forcing state-run oil companies to bear much of the burden of rising crude costs.

The government wants to hold down inflation, which has been hovering at 7.5 percent.

But there are doubts that consumers can be shielded for long. However, even if domestic oil prices are raised, the economy is expected to slow only marginally.