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Informist, Tuesday, May 5, 2026

 

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--MPC Singh: Recent FTAs to mitigate impact on econ from West Asia shock    
--MPC Singh: Not letting retail fuel prices rise so far was prudent    
--MPC Singh: See oil shock passing through to retail fuel prices now    
--CONTEXT: MPC External Member Ram Singh speaks at NCAER event in Delhi    
--IMF director:Since CPI in 2-6?nd, RBI can avoid rate hike for some time    
--IMF director: India has some fisc space to protect against West Asia shock

 

NEW DELHI – The government is likely to raise retail prices of petrol and diesel, now that the assembly elections in four states and one Union territory are over, Ram Singh, external member of the Reserve Bank of India's Monetary Policy Committee, said Tuesday. At an event organised by the National Council of Applied Economic Research here, Singh said it was prudent to protect consumers from the oil shock emanating from the conflict in West Asia, but the impact has to passed on eventually to the domestic economy.

 

Crude oil prices have soared by around 60% following the closure of the Strait of Hormuz since early March. Nearly half of India's crude and natural gas exports pass through the crucial waterway. The supply shock has resulted in fuel prices surging in several developing and advanced economies, but pump prices in India have remained unchanged.

 

The government had cut excise duty on both retail petrol and diesel, forgoing INR 70 billion of revenue fortnightly to limit the losses for oil marketing companies. This has also kept CPI inflation and inflationary expectations in the economy in check, Singh said. However, fundamentals dictate that the supply shock should pass through the economy and potentially drag down demand as well, bringing in an equilibrium, he said.

 

At the event, International Monetary Fund Director Krishna Srinivasan said all economies must allow for the price increase to be passed on to keep supply and demand balanced. This is especially pertinent at a time when prices of crude oil are rising and the global economy could face shortages of the commodity, leading to an asymmetric economic impact. A single economy continuing to consume at a faster pace because the increase in price is not passed on could disrupt the global equilibrium on crude oil, he said.

 

"An increase in fuel prices will impact a certain section of the economy," Srinivasan said. "The government can introduce targeted subsidies with a specified sunset clause..." to limit the impact on this section of the population, he said. The government had already taken some steps to mitigate the economic impact of the shock, but it should not worsen its own position as the Indian economy deals with its third major shock since the COVID-19 pandemic, the IMF director said. 

 

Some of the transmission of the external shock has already happened due to the weakness in the rupee, which is adjusting to expectations of a wider current account deficit, Monetary Policy Committee member Singh said. The domestic unit fell to a record low of 95.4350 a dollar Tuesday. The rupee has been the worst-performing Asian currency so far in 2026 and has depreciated nearly 5% since the war between the US-Israel combine and Iran broke out. This will have some impact on increasing inflation and subduing domestic demand as imported goods become more expensive.

 

At the same time, Singh highlighted that India's economic fundamentals are robust and growth may hold up. History shows that recent oil shocks had lower peak prices and a quicker return to normal, which could bring back crude oil supplies in weeks if the West Asia conflict ends, he said. Singh also said India's recent spree of signing free-trade agreements with major trading partners would cushion the economic impact from the conflict.

 

While agreeing with the country's structural resilience, Srinivasan said the share of investment in India's economy needs to be higher if it wants to fulful its ambition of becoming a developed economy by 2047. On the monetary policy side, the IMF director said the RBI's rate-setting panel could also look through the immediate impact of the crude oil shock as inflation is seen remaining within its 2-6% tolerance band. India's central bank has forecast CPI inflation to average 4.6% in the financial year 2026-27 (Apr-Mar), with upside risks, while the IMF sees it at 4.7%.  End

 

US$1 = INR 95.28

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aaryan Khanna and Sagar Sen

Edited by Rajeev Pai

 

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