India’s fiscal policy and timely measures have so far shielded the economy from the severe impact of the latest geopolitical conflict on crude oil prices. However, if disruptions persist, Brent crude prices may remain above $80 a barrel, requiring India to continue taking measures to safeguard the economy, Chief Economic Adviser V Anantha Nageswaran said on Monday.
Nageswaran said the immediate reaction in global oil markets had been relatively contained, aided by weaker demand from China and the release of strategic petroleum reserves by the US and other countries. The CEA was interacting with media after the release of the first quarter GDP growth numbers. The Q1 GDP grew at 7.8% against market expectation of 7%.
“Oil prices may have jumped a little bit on that news but by and large the oil price impact of the conflict has remained muted than what one would have expected and thankfully so from the Indian perspective,” he said.
While saying that India remained relatively insulated from the global turmoil, Nageswaran cautioned that disruptions could persist longer than initially anticipated, creating a continuing risk of supply shortages. This, he said, could prevent crude prices from declining materially and sustainably below $80 a barrel for Brent.
“More than the price of crude oil, what we should be watching are the prices of petroleum products such as diesel and natural gas, which have basically made it more expensive and that will have an implication for private consumption,” Nageswaran said.
The CEA said rising prices of refined petroleum products could pose a greater risk to the global economy than crude oil prices alone. While the direct impact on India remains limited for now, higher energy prices could weaken private consumption in Europe and the US, with implications for global demand.
“So by and large there is an impact but it is not as big as we thought and definitely not in the Indian context. But globally, prices of petroleum products could pose a risk to global demand and therefore on the prospect for export growth in the coming years,” Nageswaran said.
His comments assume significance as India remains heavily dependent on imports to meet its crude oil requirements, leaving the economy vulnerable to sustained increases in international energy prices. A prolonged oil shock could also stoke domestic inflation and put pressure on the country’s external balance.
