India may see a hike in petrol and diesel prices if global crude oil prices remain elevated for a longer period, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday, warning that the
ongoing geopolitical conflict is beginning to create broader inflationary pressures and supply-chain disruptions.
Speaking at a conference hosted by the Swiss National Bank and the International Monetary Fund in Switzerland, Malhotra said the government and state-run oil marketing companies have so far shielded consumers from the full impact of rising crude prices.
“If this is to continue for longer period of time, it is just a matter of time before the government will pass on some of the price increases,” the RBI governor said, according to a Business Standard report.
Currently, Brent crude oil trades at an elevated level of around $107 per barrel.
He noted that excise duties on fuels had earlier been cut, while state-run fuel retailers were currently absorbing part of the increase in global crude oil prices amid the continuing conflict in the region.
His remarks suggest that if crude prices remain high for an extended period, oil marketing companies may eventually increase retail prices of petrol and diesel to protect margins.
Malhotra also said supply-chain disruptions linked to the conflict were beginning to affect India. “We have this framework of flexible inflation targeting, but in such times it’s not sufficient,” he said, adding that fiscal coordination becomes critical “if the supply shock is as big as it is”.
The RBI has projected India’s economic growth at 6.9 per cent for the current financial year and inflation at 4.6 per cent. However, economists have warned that prolonged geopolitical tensions and elevated energy prices could push inflation higher while weighing on growth.
The central bank had kept the key repo rate unchanged at 5.25 per cent in its April monetary policy review.
“We are being more and more data dependent. We are taking it more meeting by meeting,” Malhotra said, adding that the RBI is prepared to look through temporary shocks, but would act if inflationary pressures become entrenched.
The RBI’s next monetary policy meeting is scheduled for June 5.
