Economists flag inflation surge and fiscal strain

Retailers may lose ₹15,000 cr a month without price hikes or govt support

- PRASANTA SAHU & SAURAV ANAND

THE SHARP RISE in crude prices has renewed concerns about its potential impact on the Indian economy, but economists say it will largely depend on how the government manages domestic fuel prices and related fiscal measures.

Global crude oil prices jumped above $119 per barrel on Monday, reaching their highest level since mid-2022, as supply cuts by major producers and fears of prolonged shipping disruptions unsettled energy markets. The spike follows escalating tensions surrounding the Iran conflict, with traders increasingly worried that the crisis could continue for several months and disrupt key oil transport routes.

The government’s response will play a crucial role in determining the fiscal consequences, said Madan Sabnavis, Chief Economist at Bank of Baroda. If authorities choose to reduce excise duties on fuels to cushion consumers, it could lead to a loss in tax revenue. Alternatively, if oil marketing companies absorb part of the higher costs while passing the rest to consumers, the direct fiscal impact on the government may be relatively limited, he said. “Subsidy on fertilisers will be under pressure for sure, and depending on how gas prices move, this may have to be calibrated,” Sabnavis said.