‘Rising prices remain a major threat to growth’
Even if crude oil prices average $100 per barrel in 2022-23, rising prices pose a high risk to growth, according to Crisil on Thursday.
Crisil expects average consumer inflation to be 5.4 percent if oil prices average $85-90 per barrel, and 5.8 percent if crude prices average $100 per barrel over the next fiscal year.
Despite this, Crisil expects headline inflation to be lower than it was in 2012-14, when oil prices surpassed $100 per barrel, accompanied by high food and core inflation.
“At the time, CPI inflation was around 8%… “Core and food inflation are likely to be lower this time,” Crisil said in its India outlook report for 2022-23.
Fuel inflation would also slow due to the base effect of high oil prices prior to the November 2021 excise duty cuts, the agency said. While core inflation would remain sticky as firms sought to pass on higher input costs to customers, services inflation would catch up as activity normalised. In recent years, high inflation had hit the urban poor the hardest.
Despite the Ukraine-Russia conflict amplifying existing downside risks like US interest rate hikes, Crisil kept its next fiscal growth estimate at 7.8%. The agency proposed more fiscal policy support to boost consumption, citing the ‘nascent and uneven’ economic recovery in India.
“While normalisation of activity will help private consumption in the coming fiscal, we believe fiscal policy may need to be more aggressive than the Union Budget envisages,” said Crisil chief economist Dharmakirti Joshi. Increase allocation for job-creating schemes, provide food subsidy, and reduce petroleum-related duties, he added.
He added that fiscal support could help those most affected by the pandemic until positive spillover effects of investment-led growth hit the labour market and private consumption demand self-sustained.