The Finance Ministry said on Tuesday that high energy and commodity prices due to Russia’s invasion of Ukraine could pose an upside risk to inflation and continued vigilance is needed.
“Going forward, high energy and commodity prices could pose an upside risk to the inflation outlook in the short to medium term. Given the inherently unsustainable nature of high prices, international commodity prices are expected to stabilize early with increased supply outside the crisis zone,” the Ministry of Economic Affairs said in its latest monthly economic report. from February.
“For FY 2022-23, the RBI (Reserve Bank of India) forecast CPI inflation at 4.5% with broadly balanced risks. However, the recent increase in the prices of food and energy products and metal warrants continued to watch over the inflation front,” he said.
The report said the second advance estimate of gross domestic product (GDP), which projects real GDP growth of 8.9% in the current year, reaffirmed a full recovery. Indeed, the size of the economy is now expected to exceed pre-pandemic 2019-2020 levels with a negligible Omicron breach.
“Geopolitical tensions – involving Russia and Ukraine – have triggered massive turbulence in the global economy. Within days, international prices for crude oil and other commodities soared, driving up the cost of India’s import basket. Its impact on India’s activity level in March, if any, can only be assessed a month later when high-frequency data becomes available,” he said.
The report adds that the geopolitical crisis continues to evolve and it is still too early to make a plausible forecast of its impact on the Indian economy over the coming year.
He said India was well prepared to weather the impact of rising commodity prices as foreign exchange reserves continued to be at an all-time high. They are large enough to finance more than 12 months of imports. Moreover, foreign investors have remained largely invested in the economy.
“The impact on growth, inflation, current account and fiscal deficits will depend on whether commodity prices persist at elevated levels. As the base effect fades, WPI inflation should moderate in the coming months,” he said.
Calibrated interventions to check fuel prices: government
The government said on Tuesday it was closely monitoring evolving geopolitical developments and would make “calibrated interventions” to keep fuel prices under control to safeguard the common man’s interest.
Minister of State for Finance Pankaj Chaudhary said the crude oil and natural gas, fuel and electricity subgroup in the Wholesale Price Index (WPI) is directly linked to fluctuations in crude oil price.
Asked at the Rajya Sabha on whether the government will reduce excise duties to control the escalating fuel prices due to the Ukraine crisis, Chaudhary said that public sector oil marketing companies ( WTO) were making the appropriate decisions on gasoline and diesel pricing. with international product prices, exchange rate, tax structure, domestic freight and other cost elements, etc.
“The government is closely monitoring these factors and evolving geopolitical developments and would make calibrated interventions as and when required to safeguard the interests of the common man,”
India depends on foreign purchases to meet around 85% of its oil needs, making it one of the most vulnerable countries in Asia to rising oil prices. Amid the ongoing Russian-Ukrainian war, crude oil prices hit $140 a barrel early last week. Prices have since cooled and are now hovering around $102 a barrel. (PTI)