Amid worsening of the West Asian conflict, experts said any further slowing of exports could potentially have an adverse impact economic growth, but added that it was too early to evaluate the extent of it.
Any spike in crude oil prices resulting from a potential broader conflict could push prices of assorted commodities, including natural gas and fertilisers, up, with consequences for the Union Budget. However, this could be tempered to a great extent, because petroleum product prices are de-regulated, and explicit oil subsidy is limited to LPG.
While a widening of the trade deficit resulting from higher oil import bill could have implications for the current account, at this juncture, the fears over this are muted. Policymakers are assessing the situation closely.
The benchmark BSE Sensex was down 2.1% at 82,497 on Thursday, Indian rupee dropped 0.18% versus the U.S. dollar to 83.96 and government bond yields rose, tracking the rise in US peers and oil prices.
“The uncertainty/conflict is have its impact on commodity prices as witnessed in crude. The other major risk is Indian exports in general, if it leads to global growth/demand slow down impacting our exports,” said India Rating chief economist DK Pant.
Lower exports and higher imports (due to price increase) may have adverse impact on Indian growth.
“The prices of other major commodities imported by India, which has large fiscal implication through subsidies is fertilizer, India imports fertilizer both from Israel and Iran, however imports from them is not significant in overall fertilizer import,” said Pant.
The impact on budget due to subsidy is unlikely to be significant. If crude oil price average USD80/bbl in rest of this fiscal, it is unlikely to have any impact on pump prices of petroleum products and thus hit on inflation, Pant added.
The Reserve Bank of India is expected to cut interest rates by a modest 50 bps over the next six months, according to a Reuters poll, which predicted it would likely wait until December to start easing.
India’s GDP growth of 6.7% in Q1FY25 and the movements in high-frequency indicators till August fit well with the real GDP growth projection of 6.5 –7% for FY25 provided by the Economic Survey 2023-24, the finance ministry economists recently said in a report. Amid global uncertainties, low oil prices are a bright spot for the economy, they said.