Policymakers need to be vigilant of evolving global crude price dynamics impact: RBI
In this regard, government policies would play a pivotal role in containing the impact, said the RBI in a paper titled 'Revisiting the Oil Price and Inflation Nexus in India' in its latest Bulletin.
'Specifically, reducing crude oil dependence by promoting alternate non-fossil energy usage and 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 consumption growth and robust economic activity.
Oil prices and their inflationary impact is a key metric that sensitise 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 inflation pressures.
'The direct impact of international crude oil price changes to 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 by 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 run, 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 km 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 garnered attention from global and domestic energy players, and Round X is expected to set new benchmarks for participation and investment.
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