While active government intervention has contained spillover to domestic oil prices, policymakers need to remain vigilant and cautious of the direct and indirect impact of evolving global crude price dynamics through continuous assessment, given India’s increasing dependence on crude oil imports.
The Reserve Bank of India (RBI) has stressed.
In this regard, government policies will play a pivotal role in containing the impact, said the RBI in a paper titled ‘Revisiting the Oil Price and Inflation Nexus in India’ published in its latest Bulletin.
“Specifically, reducing crude oil dependence by promoting alternative non-fossil energy usage, as well as regional free trade agreements and bilateral treaties with major oil exporters, could be explored for oil imports at favourable prices,” the paper emphasised.
In recent years, India’s net import demand for crude oil has remained strong, fuelled by rising consumption and robust economic activity.
Oil prices and their inflationary impact are key metrics that influence monetary policy formulation in economies vulnerable to oil price shocks, particularly net oil importers, where rising oil prices can significantly dampen economic growth and stoke inflationary pressures.
“The direct impact of international crude oil price changes on domestic petrol and diesel inflation, and indirectly through transportation and input costs, is evident in the post-deregulation period, albeit at a subdued level as government intervention through taxes, cess, and regulation of oil marketing companies has often muted the impact,” the RBI paper noted.
The results of the empirical analysis suggest that a 10 per cent increase in international crude oil prices could raise India’s headline inflation by around 20 basis points on a contemporaneous basis.
“Although the pass-through to retail prices has remained contained with active government intervention, increasing dependence on crude oil imports may have inflationary consequences in the long term, warranting constant vigilance and careful monitoring of its potential impact,” said the RBI paper.
Meanwhile, India is taking steady, confident steps towards oil self-sufficiency and under Prime Minister Narendra Modi's leadership, the country is securing its energy future, step by step, Petroleum Minister Hardeep Singh Puri said recently.
While 1 million square kilometres of offshore area is now open for oilfield exploration, 99 per cent of 'No-Go' areas have been cleared.
The oil and gas blocks being offered under the Open Acreage Licensing Programme (OALP) have already attracted attention from global and domestic energy players, and Round X is expected to set new benchmarks for participation and investment.
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