Oil shock: What the RBI can do

The absolute oil price rises at a very high rate and the absolute prices of other goods and services rise somewhat at their usual rates

After the early 1980s, the real oil price has become quite cyclical. It goes up and down with a very slight long-term upward trend. So, if the international oil price goes up, ideally the government should reduce the tax on oil or even give a subsidy so that the domestic price of oil does not go up much. And, subsequently when the real international oil price is quite low, the government can impose a large tax. Again the domestic oil price remains somewhat stable. However, the government may not do all this.

Then the question is, what can the Reserve Bank