Inflation Risks
As we move into the second half of the fiscal year, the Reserve Bank of India’s (RBI) forecast of a 4.5 per cent average inflation rate brings some optimism.
The role of the Organisation for Petroleum Exporting Countries (OPEC) in determining the price of crude oil. Alike all other products, the price of crude oil is also based upon demand and supply theory. As OPEC evidently doesn’t have a role in the demand for crude oil, it has full control over the supply chain, and hence in order to influence the price, they simply increase or decrease the price.
The focus point of this article is to highlight what possible impact this high crude oil can cause on our country. Here are some points to be noted;
Current Account Deficit: The increase in oil prices will increase the country’s import bill, and further disturb its current account deficit (excess of imports of goods and services over exports).
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Inflation: The increase in crude prices could also further increase inflationary pressures that have been building up over the past few months.
Fiscal Health: If oil prices continue to increase, the government shall be forced to cut taxes on petroleum and diesel which may cause loss of revenue and deteriorate its fiscal balance.
The revenue lost will erode the government’s ability to spend or meet its fiscal commitments in the form of budgetary transfers to states, payment of dues, and compensation for revenue shortfalls to state governments under the Goods and Services Tax (GST) framework.
Although the rising prices have impacted the world, India is particularly at a disadvantage as any increase in global prices can affect its import bill, stoke inflation, and increase its trade deficit, which in turn will slow its economic recovery.
India and other oil-importing nations have called on OPEC+ to boost oil supply faster, arguing that elevated crude oil prices could undermine the recovery of the global economy.
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