Risk of Oil price spike impacting India in Fy25 is low: CEA Nageswaran

The spike in oil prices due to global factors, including economic slowdown and geopolitical conflicts, is unlikely to be a major downside risk for the Indian economy in the next financial year (FY25), according to V. Anantha Nageswaran, Chief Economic Advisor.

'The cooling of economic activity will happen first before a decline in global interest rates happens. Therefore, I do not think energy demand will necessarily become sufficient enough in the course of 2024 to see oil prices spike up.

The geopolitical situation and what is happening to cargo movement in the Red Sea are relevant factors. However, this is going to run into the challenge of slowing demand. If prices rise, they will further cool down the economic activity,' Nageswaran said in an interaction at State Bank of India’s Banking and Economic Conclave.

According to the Financial Stability Report December 2023, the Indian basket of crude oil prices, which was moderating for more than a year, trended upwards during July-October 2023 before a decline in recent months. Continuation of production cuts by Opec+25 alongside mounting uncertainties stemming from the conflict in West Asia could keep prices volatile in the near term and pose risk to the inflation outlook.

An oil price surge of 10 per cent from the baseline of $85 per barrel could weaken domestic growth by 15 basis points and increase inflation by 30 basis points.