China?s recent decision to hike fuel prices by about 10% has set off alarm bells amongst policymakers in India as it could result in inflationary pressure in the domestic market.
The reason behind India?s worry over Chinese fuel price hike is the fact that China is one of the largest global manufacturing base and a substantial part of goods, including consumer durables, sold in India are sourced from the country.
?An oil price hike usually sets off inflationary pressures, making goods more expensive. China being one of the biggest suppliers of goods globally, is likely to set off inflationary pressures internationally and especially in India,? a government official pointed out.
This comes in the backdrop of inflation dipping to a five year low of 2.97% in the last week of October. Authorities are monitoring the situation closely and the committee of secretaries has reviewed prices of major commodities in a meeting on Wednesday, a government source said.
Experts have also pointed out that food prices too are increasing globally. In China food prices have risen by 18%, while in Pakistan and Indonesia they have shot up by 13%. It is expected that the sharp rise in the food prices in China could lead to a rise in wages, which would push export prices.
?Internationally, there have been concerns about increase in prices of energy, oil, gold and other commodities. There are fears that this would have inflationary consequences, but at the moment it is difficult to say how authorities would be ale to tackle it,? Saumitra Chaudhuri member Prime Minister?s economic advisory council said.
The government had decided to delay fuel price hike in an effort to rein in inflation as well as gain goodwill for the soon approaching state elections. The economy has already been battling the problem of excess liquidity due to the huge surge in capital inflows.