Crude oil price has reached a record three-year high on Wednesday, and this has caused concerns about economic growth in India. Brent crude oil price is currently trading close to $67 per barrel. This trend is expected to continue in the future with many experts predicting oil price to hit the $80 mark by the end of 2018. Geopolitical risks and the ongoing protests in Iran are blamed for this development.
The price of crude oil is expected to reach $70 in the near future. Oil price on Tuesday reached $67.12 per barrel, the highest since 2014. This constant rise for the last three years has become a cause of concern for the government. With this increase, fuel prices in the country are also reaching record highs. In New Delhi, diesel price has touched an all-time high of Rs.59.38 per litre. Fuel prices in Chennai and Kolkata have also reached the highest in three years.
The government is currently focusing on keeping the inflation level under 4%. In its last policy review, the Reserve Bank of India (RBI) refused to cut the repo rate amidst fears of rising inflation level. Food inflation has already increased in India over the last few months. The RBI is focusing on keeping it under control at least for the next two quarters. This increase in crude price might have an adverse impact on that plan.
Japanese financial holding company Nomura stated that a $10 increase in crude oil price will adversely affect the country’s fiscal balance by 0.1%. In addition to this fiscal slippage, rise in crude oil price will also increase the price of food and other commodities.
This is a critical time for India as it is currently recovering from the adverse impact caused by the implementation of GST and demonetisation. The government is focusing on various economic growth measures to increase the country’s economy. For instance, the government is providing a major capital infusion package for public sector banks to improve credit growth in the country. This increase is oil price is likely to make it difficult for the government to implement economic growth measures.