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The finance ministry said on Tuesday that high energy and commodity prices due to the Russian invasion of Ukraine may provide an upside risk to inflation and continued vigil is required.
“Going forward, elevated energy and commodity prices may act as an upside risk to the inflation outlook in the near-medium term. Given the inherently unsustainable nature of high prices, international commodity prices are expected to level off early with an increase in supplies outside the crisis zone,” the department of economic affairs said in its latest monthly economic report for February.
“For the fiscal year 2022-23, RBI (Reserve Bank of India) has projected CPI inflation at 4.5 per cent with risks broadly balanced. However, recent increase in prices of food and energy commodities and metals warrants continued vigil on the inflation front,” it said.
The report stated that the second advance gross domestic product (GDP) estimate, which expects real GDP to grow by 8.9 per cent in the current year, has reaffirmed full recovery. This is because the size of the economy is now expected to go past pre-pandemic levels of 2019-20 with a negligible dent from Omicron.
“The geopolitical tensions — involving Russia and Ukraine — triggered a massive turbulence in the global economy. Within days, international prices of crude oil and other commodities shot up, escalating the cost of India’s import basket. Its impact on India’s activity level in March, if any, can be assessed only a month later, when high frequency data becomes available,” it said.
The report added that the geo-political crisis is still evolving and these are early days to make a plausible forecast of its impact on India’s economy in the year ahead.
It said that India has braced well to meet the impact of rising commodity prices as foreign exchange reserves continue to be at a record high. They are large enough to finance more than 12 months of imports. Also, foreign investors have largely stayed invested in the economy.
“The impact on growth, inflation, current account and fiscal deficits will depend on the persistence of commodity prices at elevated levels. As the base effect fades, WPI inflation is expected to moderate in the coming months,” it said.
Calibrated interventions to check fuel prices: Govt
The government on Tuesday said it is keeping a close watch on evolving geopolitical developments and would make ‘calibrated interventions’ to keep fuel prices under control to safeguard the interest of the common man.
Minister of State for Finance Pankaj Chaudhary said crude petroleum and natural gas, fuel & power subgroup in the Wholesale Price Index (WPI) is directly related to the fluctuations in the prices of crude oil.
To a question in the Rajya Sabha on whether the government will cut excise duty to keep fuel price escalation due to the Ukrainian crisis in control, Chaudhary said the public sector oil marketing companies (OMCs) take appropriate decisions on pricing of petrol and diesel in line with their international product prices, exchange rate, tax structure, inland freight and other cost elements etc.
“Government is keeping a close watch on these factors and the evolving geopolitical developments and would make calibrated interventions as and when required to safeguard the interests of the common man,”
he said.
India relies on overseas purchases to meet about 85 per cent of its oil requirement, making it one of the most vulnerable in Asia to higher oil prices. Amid the ongoing Russia-Ukraine war, crude oil prices had touched $140 a barrel early last week. The prices have cooled since then and are now hovering around $102 a barrel. (PTI)
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