BENGALERU : Soaring global commodity prices and supply disruptions due to the Russian-Ukrainian conflict pose a dual challenge to the Indian economy: growth could slow while inflation could remain high, the Ministry of Foreign Affairs said. Finances in its Monthly Economic Review published on Thursday.
However, he added, the magnitude of the impact would depend on how long the high prices persisted.
The ministry said the government was exploring all options, including import diversification, to procure crude oil at an affordable price. But should high international crude prices persist for long, it could hamper India’s prospects of achieving an economic growth rate above 8% in 2022-23, he said.
The economic study had forecast in January that the economy would grow between 8 and 8.5% in 2022-23.
“In the spirit of Atmanirbhar Bharat, which places national economic and security interests above all other considerations, the government is exploring all viable options…to procure crude at an affordable price. Affordability is desired as even the current level of the international crude price, if it persists for a long time, could prevent India from achieving a real economic growth rate north of 8% in the financial year. 23,” the finance ministry said in its report.
However, the domestic economic dynamics seen in massive government investment spending, increased excise tax collections and importation of capital goods provide comfort, so the impact on the Indian economy could prove “tolerable”, he added.
Russia reportedly offered Indian oil at a discount of up to $35 a barrel on pre-war prices and New Delhi accepted the offer. The price of Brent crude, which makes up the bulk of India’s crude oil basket, has been hovering around $105-$106 a barrel since April 1.
The ministry said that while India may feel the impact of the geopolitical conflict on growth prospects, the extent will depend on how long disruptions in energy and food markets last in the financial year. and the resilience of the Indian economy to mitigate the impact. Transitory shocks might not have a big effect on real growth and inflation, he said, adding that the economy might prove resilient thanks to the government’s focus on spending. investment and improving the health of the business sector.
The allocated budget ₹$7.5 trillion for capital spending in 2022-23, 24% higher than the revised 2021-22 estimate.
To offset these potential headwinds, the report says the government’s flagship projects, including GatiShakti and production-related incentive schemes, will boost investment.
“These will combine with supply chains strengthened by the structural reforms undertaken over the past few years to ensure high post-recovery growth for the Indian economy.” He added that the growth path ahead is likely to be more inclusive as the government has extended free food grain support for the poor for another six months. labor force participation and lower unemployment, he added.
With India’s merchandise exports hitting a record $418 billion in 2021-22, the Ministry of Finance expects export momentum to continue in this fiscal year with marginal downside risks emanating from the conflict in Ukraine and related global fallout. He added that the surge in imports in March – driven by a 20% sequential rise in crude oil prices – “does not bode well for the economy in the year ahead.”
To ensure security of crude supplies and mitigate the risk of reliance on oil imports from a single region, India has focused on diversifying its oil basket in West Asia, Africa, in North and South America.
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