Rising global oil prices to impact policy, says FM

Union Finance Minister Pranab Mukherjee on Saturday said political uncertainty in some countries and fragile economic recovery could have serious policy implications for India. He said volatility in crude oil prices was further deepening the uncertainty but, “India will be able to deal with the situation”.

“Fragility of recovery of the world economy, uncertainty created because of political unrest in West Asia and North Africa have serious implications for Indian policymakers,” Mukherjee told reporters after addressing the board of the Reserve Bank of India (RBI).

Mukherjee’s comments came at a time when global crude prices were above $116 a barrel amid political unrest in West Asia and North Africa, especially in Libya.

Mukherjee showed confidence that the government and RBI would be able to deal with the situation. “I shall assure you, in consultation with RBI, as we have overcome the financial crisis from the mid-1980s, I am confident we will be able to face the challenges,” he said.

If oil prices continue to rise, the government may either have to deregulate diesel prices or increase oil subsidy. The finance ministry has estimated an oil subsidy of Rs 23,640 crore in 2011-12, which is lower than Rs 38,386 crore for the current year. It has already deregulated petrol prices, but deregulation of diesel has not been initiated because of high inflation. India’s economy may have grown at 8.6 per cent in the first nine months of the current year, but many advanced economies like the US are yet to see a complete recovery, while some Euro zone countries face sovereign debt crisis.

“There is a problem of whether the sovereign debt crisis in some countries of the Euro Zone would confine within them or will have an adverse impact in the rest of Europe… Rapid and robust recovery of Europe is important for us from our exports point of view as it is a major export destination and, secondly, from the point of view of FDI inflow,” Mukherjee said.

In the meeting with RBI, Mukherjee apprised the Board of the major policy concerns and proposals made in the Union Budget having a bearing on the central bank. He explained the nuances of the Budget and stressed the need to sustain post-crisis economic recovery and growth momentum, while keeping inflation in check against the uncertainty of oil price rise.

The finance minister also said the government’s market borrowing programme of Rs 4.17 lakh crore for 2011-12 would not disrupt credit flow to the private sector.

“Last year, we carried out our borrowing programme in such a manner that there was no disruption. I can assure you that this year also our borrowing programme, in consultation with RBI, will be in such a manner that there would be no problem for the private sector,” he said.

Earlier in the day he met the board of directors of the Securities and Exchange Board of India and reviewed the activities of the market regulator. “I had a very fruitful and useful discussion with the Board members. Lots of improvements and other activities are taking place as we know,” Mukherjee told reporters after the customary meeting.