Pass on higher oil prices to consumers, says IMF

Amid expectations of an increase in retail prices of petrol and diesel, the International Monetary Fund (IMF) on Tuesday suggested a pass through of higher crude prices to consumers, while arguing that India had headroom to navigate the current energy shock due to the closure of the Strait of Hormuz.

“They (govt) have cut excise taxes on oil. They provide some fertiliser subsidies. This can continue for some time, not much more in terms of fiscal space. At some point in time, you have to allow price signals to start to flow. And that’s something which is true for India,” IMF's director for Asia Pacific Krishna Srinivasan said at an event organised by NCAER. He also argued that higher prices would temper demand at a time when countries were facing supply constraints. For the poor and vulnerable segments, Srinivasan backed targeted subsidies.

The IMF official’s suggestion that India had limited fiscal space, was countered by RBI deputy governor Poonam Gupta, who argued that in a comparative context, the country was much better placed. Citing data she said that India’s gross debt as a proportion of GDP is projected to decline from 83.4% in 2026 to 77.7% in 2031 when the advanced economies, middle income countries, emerging market economies and the global level will be rising. She said that India had not only seen prudent fiscal policies but had also seen good fiscal consolidation and higher growth will help its case. Gupta also pointed out that IMF’s initial growth forecast had been lower than its revised numbers and underlined that the Indian economy remained resilient in the face of strong growth and benign inflation.

Separately, on the issue of monetary policy framework, she said that India could consider lowering its inflation target with a narrower tolerance band if growth remains robust with stable inflation over the next five years. Currently, govt has retained an inflation target of 4% with a possible deviation of 2 percentage points on either side.

Gupta said India’s financial sector and macroeconomic stability are here to stay, and added that structural reforms help a country to build buffers and be better prepared for the next crisis.
Ready to Make a Smarter Property Decision? Build Your Legacy with TOI Homes.