"Just as we thought, there are some 'economic benefits' because of growth slowdown, OPEC cut production," said Chief Economic Advisor (CEA) V Anantha Nageswaran on Friday, adding that it remains to be seen how the oil price cap works out.
OPEC+ agreed on its
deepest cuts to oil production since the 2020 COVID-19 pandemic at a Vienna meeting on Wednesday, curbing supply in an already tight market despite pressure from the United States and others to pump more.
The CEA believes India enjoys relative economic stability.
'Rupee performance has been one of the better ones'
The CEA said that the rupee's performance has been one of the better ones.
Finance Minister Nirmala Sitharaman had also recently spoken about how the rupee has been holding out well against the dollar, in comparison to other currencies.
However, on Friday the rupee depreciated by 32 paise, or 0.4 percent, to
hit a record low of 82.20 against the dollar amid a sustained rise in crude oil prices after the top producers agreed to reduce output by two million barrels a month. This marked the first time the Indian currency sank below the 82-mark against its American counterpart.
"Rupee has done far better against the US dollar. The Indian currency has done much better against currencies other than the US dollar," he said.
The recent fall in Indian rupee against the dollar was more about the latter than the former. "The reality is that when US raises interest rates, the dollar tends to appreciate. It's a story of dollar strength and not rupee weakness," he said, adding that at the moment, the path of currency adjustment is at par for the course and "something we can live by".
The US Federal Reserve recently hiked interest rates by 50 bps for the fourth-consecutive time to combat inflation, and is likely to increase it further in the coming months. The Reserve Bank of India also increased the repo rate by 50 bps, in line with expectations.
"Rising interest rates also leads to savings. Term deposit rates are also increasing," the CEA said.
He added that inflation is hurting all countries and is "beyond our control. The fact that India’s growth projection has fallen to 6.5 percent shows inflation is hurting us".
'Need to be watchful of FIIs'
Nageswaran said that the foreign institutional investors (FII) inflows is one area that India needs to be watchful of. FIIs have mostly been net sellers in the last few months.
"As of now, we feel it’s something to be watchful about, but not something to lose sleep over," he said.
The CEA said that India has enough foreign exchange reserves to cover imports. "In good times we have built safety nets, bought umbrellas which are being used in these times," he said.
He added that debt sustainability for India is not an issue as nominal GDP growth rate is higher than cost of borrowing and the debt trajectory is expected to improve.
