India’s policy action will be dependent on how global peers such as the US Federal Reserve react to the evolving macroeconomic conditions, Sanjeev Sanyal, Member, Economic Advisory Council to the Prime Minister, said at the inaugural edition of Financial Express Boardroom. Sanyal said India’s action will depend on how the rest of the world reacts to the evolving macroeconomic conditions such as how much the US Fed tightens, how other emerging market peers deal with global conditions, and how much oil do other oil-producing nations decide to pump. Sanyal was broadly speaking about how the Ukraine crisis is impacting the Indian economy.
Despite the headwinds from rising energy prices, Sanyal said he believes India’s growth momentum is strong, and the nation can achieve its target of 9% growth depending on how the road ahead leads. He also said with exception of oil, commodity driven inflation, overall inflation figures are in good shape. Inflation in India is mainly imported inflation, and in fact it is not India specific issue, the rest of the world is also facing the same, he added.
Even though the administration needs to be wary of oil-price led high CPI inflation, most of the inflation India is facing is imported. While India is cushioned, inflation from rising oil prices can still seep through, Sanyal said, adding that it depends on how long the situation in Russia-Ukraine persists. Economists have predicted that oil-prices are expected to remain elevated in the near term. Barclays India, expects India to be primarily impacted by the conflict in Ukraine through the energy price channel and maintains CPI inflation forecast at 5.1% for fiscal year 2022, with risks biased to the upside.
International crude oil prices, which are expected to remain elevated amid the Russia-Ukraine war, may cost India 1.9% GDP, hit households to the tune of $22 billion (about Rs 17 lakh crore), stoke inflation by one percentage point, cut excise revenues, and widen current account deficit, economists said.
Read more: How much will high crude oil prices cost India economy; this much hit likely on GDP growth, inflation, revenue
Sanyal, who was Principal Economic Advisor in the Ministry of Finance till last month, said India’s macroeconomics are in good shape. “We have foreign exchange reserves of $630 bln plus, with the exception of oil and commodity driven inflation, inflation is in control, India’s external accounts are in reasonably healthy shape and growth momentum is coming back in many sectors.” India’s financial sector remains robust, he said, adding, even though markets have corrected due to events in Ukraine, they are not very far from all time highs.
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