No substantial impact of crude surge on inflation: Finance minister Nirmala Sitharaman

NEW DELHI: Finance minister Nirmala Sitharaman on Monday said that the increase in oil prices is unlikely to result in a significant acceleration in inflation. "Given that India's inflation is near the lower bound, the impact on inflation is not estimated to be substantial at this point," the minister said in response to a question in the Lok Sabha on Monday.

Citing the MPC's report from last Oct, Sitharaman said that a 10% increase in crude prices from the baseline assumption and assuming full pass through will translate into a 30 basis point increase in inflation (100 basis points equal a percentage point).




Latest official data estimated retail inflation at 2.8%, which is closer to the lower end of the 2-6% band fixed for the monetary policy committee (MPC).

Between the end of Feb and March 2, the cost of crude for domestic refiners, referred to as Indian basket price, had increased 16% to $80.2 a barrel and is now on the verge of breaking the $100 a barrel mark. Apart from an increase in crude prices, a weaker rupee will add to the import bill and the cost of oil refiners.

While cooking gas prices have increased, govt has ruled out an immediate hike in petrol and diesel prices given that the oil marketing companies were making healthy profits until the conflict in West Asia. Besides, the Centre itself has been mopping up significant amounts of revenue from fuel sales. Govt and oil companies are expected to bear the brunt before the impact is passed on to consumers.

"However, the medium-term impact of the global crude oil price rise on inflation depends on several factors, including exchange rate movements, global demand and supply situation, monetary policy transmission, the state of general inflation and the extent of the indirect pass-through," Sitharaman said.

Sitharaman said that theCentre and RBI have worked to ensure that inflation remains moderate, which has included measures to cool down food prices, lower fuel taxes and taxation measures including rationalisation of GST and income tax.