Indias Economy Unlikely to be Impacted by Potential Oil Price Hike, Says Chief Economic Advisor

Mumbai, December 28: India's chief economic advisor, V Anantha Nageswaran, has expressed optimism that the domestic economy will not be significantly impacted by a potential rise in oil prices due to global factors. Addressing the SBI-organized economic conclave on Thursday, Nageswaran based his assessment on the assumption that economic activity will cool down before a decline in global interest rates.

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Economic Growth Forecast

According to the latest Reserve Bank of India (RBI) forecast, the Indian economy is poised to grow by 7% in the current fiscal year. This projection represents a 50 basis point increase from the earlier estimate. While the government does not have a specific GDP target, it believes the economy may grow between 6.5% and 7%.

Oil Price Impact

Nageswaran acknowledged the potential for oil prices to rise due to global factors such as economic slowdown and geopolitical conflicts. However, he believes that these factors will not be severe enough to cause a significant slowdown in demand. He explained that if oil prices do increase, it could further cool down economic activities, thereby mitigating the impact on the domestic economy.

Crude Price Trends

Citing the RBI's latest financial stability report, Nageswaran noted that the Indian basket of crude oil prices, which had been moderating for over a year, began to trend upwards between July and October. However, prices have started to decline in recent months.

Risks to Inflation Outlook

Nageswaran acknowledged that the continuation of production cuts by the oil cartel OPEC+ and uncertainties arising from conflicts in West Asia could lead to price volatility in the near term. This, in turn, could pose risks to the inflation outlook. According to the RBI, a 10% increase in oil prices from the baseline of USD 85 per barrel could weaken domestic growth by 15 basis points and increase inflation by 30 basis points.

Conclusion

In conclusion, Chief Economic Advisor V Anantha Nageswaran believes that the Indian economy is resilient to potential oil price hikes due to global factors. While acknowledging the risks associated with rising oil prices, he expressed confidence that the domestic economy will remain on a steady growth trajectory.