India to face limited inflation impact from oil surge: CEA Nageswaran

By Ruchi Bhatia

 

India’s top government adviser said rising oil prices are likely to have a limited impact on inflation for now and Asia’s third-largest economy remains in a relatively favorable position to weather global risks.  

While high oil prices due to the ongoing crisis in the Middle East is a matter of concern, “it is still not something that is going to be significant in terms of impact,” Chief Economic Adviser V. Anantha Nageswaran said in an interview on Friday. Cooling inflation, ample liquidity and low interest rates will provide the right conditions for India’s economy despite global uncertainties, he added. 

 

Brent crude prices rose 20 per cent in the last one month as tensions between Israel and Iran escalated. Soaring oil prices can put pressure on the South Asian nation that is the world’s third-biggest importer of crude. It can also stoke inflation and hurt household incomes in a country where private consumption accounts for as much as 60 per cent of the gross domestic product.  

 

“It is too soon to get overly concerned yet,” Nageswaran said, adding that India will be able to absorb the impact of high crude prices if they are short-lived. “I think it might have to take more than a quarter or even getting into a couple of quarters before we really have to worry.” 

 

The government expects the economy to expand 6.3 per cent to 6.8 per cent for the fiscal year ending March. While that pace is lower than the 8 per cent average seen in the last couple of years, India still retains the world’s fastest-growing major economy tag. 

 

Nageswaran said good monsoon rains, that irrigate more than half of the country’s farmlands, will also bode well for the economy. “The underlying price pressures are quite absent and ample rainfall will also aid India’s economy,” he said.