Crude oil prices likely to calm down, says Kaushik Basu

The government today said it is hopeful that the rally in crude oil prices due to the ongoing political turmoil in MENA (Middle East and North Africa) region will be short-lived.

"If you look at futures market also, there is expectation that this (crude oil prices) is going to go down. So overall, my expectation is that this very high price regime is not going to last," Chief Economic Advisor Kaushik Basu said. 

Crude prices, which has become a big concern for the government fighting inflation, softened to about $104 to a barrel on the New York Mercantile Exchange after touching $107 a barrel, its highest level since September 2008. 

While pointing out that rising crude price in international market was indeed a concern for the government, Basu expressed the hope that the rise driven by political problems in the Middle-East will be short-lived.  

"The reason is (that) this is being driven largely by Middle-East crisis. And if you look at crude spot price in US, (they are) lower than the price in Middle East and usually such a big diversion (does not exist)", he added.  

However, he added, India's growth could be impacted if the crude oil prices rise to $130-140 a barrel and remain there for sustained period of time. 

"If we get into a very high sustained oil price regime, because the Middle Eastern crisis become more serious and continues for a long time, then that would be a matter of great concern, more for the growth than for the inflation.  

"If it crosses $130-140 a barrel mark like it did in 2008...If it gets into those kinds of figures, and sustains somewhere, then that will begin to make a dent on our growth figures", Basu said. 

India has been trying to combat inflation, which has been hovering at above 8 per cent, much above the comfort level of 5-6 per cent.

India has recovered fast from the impact of the global financial meltdown recording a growth of 8 per cent in 2009-10, up from 6.8 per cent in the previous fiscal.  

The growth in the current fiscal is projected to be at 8.6 per cent and 9 per cent in 2011-12. India was growing at over 9 per cent, before the crisis pulled down the growth rate to 6.8 per cent in 2008-09.