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| Jump in crude prices to add over 1% to India's inflation and hurt growth | | |  agencies
NEW DELHI, Feb 25: Already slowing Indian economy will take a more resounding hit from the ongoing Russia-Ukraine border conflict, with skyrocketing oil prices fueling inflation higher and as importers and exporters stay on the sidelines in a wait and watch mode.
India, which meets nearly 80% of its oil needs from imports, faces the risk of inflation hitting consumer demand as global crude prices rose above $100 a barrel to multi-year highs.
Based on the Reserve Bank of India's analysis, that jump in oil prices of about $30 since January from around $70 back then - will add about 1.5 per cent to inflation.
Supply-side bottlenecks leading to runaway inflation have been India's bane for years. The current global environment of higher price pressures led by the coronavirus-driven supply chain disruptions will further add to the country's woes.
"Although ongoing geopolitical tensions between Russia-Ukraine can hurt Asia through multiple channels, such as tighter global financial conditions, elevated uncertainty and the risk of weaker global demand, higher commodity prices are the most important transmission channel," said Sonal verma, Chief Economist - India and Asia ex-Japan, at Nomura.
"In India, we expect higher oil prices to increase the risk that consumer price inflation breaches the upper bound of the RBI's 2-6% inflation range - pushing the RBI further behind the curve, weigh on government's fiscal finances - if excise duties are cut again, weaken consumption demand and push the basic balance of payments deeper into deficit - of over $40billion in FY23," she added.
The government's annual economic survey forecasts India's economy will grow 8.0 per cent to 8.5 per cent for the fiscal year starting in April, down from 9.2% projected for the current year.
That report, tabled by finance minister Nirmala Sitharaman in parliament ahead of the annual budget in late January, warned about risks from global inflation and pandemic-related disruptions. And back then global oil prices ranged between $70 and $75 per barrel. |
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