Indian government is not ‘alarmed’ by the rise in oil prices

The Finance Ministry of India has kept its forecast for economic growth, as measured by gross domestic product (GDP), at 6.5 percent for the financial year ending March 2024. This, despite high crude oil prices and the monsoon deficit, both of which have led to a sharp rise in inflation in the world’s fifth largest economy.

The price of crude oil — India imports more than 80 percent of all the oil it needs — has gone up from nearly $71 a barrel in mid-June to over $93 a barrel. The cost of the Indian crude oil basket had risen to over $94 a barrel on September 20. In metro cities like Mumbai, New Delhi, Kolkata and Chennai, the price of petrol remains above Rs 100 a litre, and the price of diesel ranges from nearly Rs 90 to Rs 97 a litre, today (September 22).

But as per the August Economy Review released by Finance Ministry, the government is not “alarmed” by the rise.

In April 2023, the Reserve Bank of India (RBI) had expected the price of crude oil to average around $85 a barrel for the whole year. The current price of crude oil is well above that estimate.

Meanwhile, the monsoon had been disappointing as well, until now. A late burst of rains in September has reduced the rain deficit for the year to 7 percent, according to India Meteorological Department (IMD).

Earlier this month, the IMD had projected a 11 percent deficit, which would have been the least amount of rain in eight years. However, there has been some relief from rains, which, the government hopes, may ease the shortage in certain crops.

Food inflation in India has been high for at least a few months now, made worse by the rising cost of fuel. Overall, retail inflation went up to 7.44 percent in July (the highest in the preceding 15 months), before cooling off a little in August, to 6.8 percent.

It is likely to ease further, according to the finance ministry official, who also said that the high-frequency indicators are shaping up well.

The government is also taking heart from the 24 percent spike in advance tax collection in September. “They (private sector) are investing,” the official said.

Recently, Goldman Sachs, had projected India’s GDP growth at 6 percent for the full-year ending March 2024. In the following interview, Santanu Sengupta, Chief Economist, India, Goldman Sachs, explains the rationale for his estimates.