Mumbai: The government may need to increase retail fuel prices if the conflictin the Middle East drags on, the Reserve Bank of India (RBI) Governor Sanjay Malhotra has said.
“If this continues for a longer period, it is only a matter of timebefore the government passes on some of the price increases,”Bloomberg quoted the RBI Governor. He was speaking at a conference hosted by the Swiss National Bank and the International Monetary Fundin Switzerland on Tuesday.
Malhotra’s comments came after Union Petroleum Minister Hardeep SinghPuri a day earlier indicated that a prolonged West Asia crisis couldforce the government to pass on the pressure to domestic consumers, asoil-marketing companies (OMCs) continue to bleed losses from holdingpetrol, diesel, and LPG prices firm.
The Prime Minister Narendra Modi too on Sunday urged citizens to cutdown on petrol and diesel use, put off gold purchases and avoid foreign travel in order to preserve foreign exchange reserves. The government has already raised import duty on gold and silver from 6per cent to 15 per cent, effective May 13. Import duty on platinum has been raised from 6.4 per cent to 15.4 per cent. These measures are expected to support the falling rupee and help narrow India’s widening current account deficit (CAD). The central government has also cut excise duty on petrol and diesel last month to reduce the burden on oil marketing companies (OMCs) due to crude oil price rally.
Supply-chain disruptions because of the blockade of Strait of Hormuz are beginning to hit India and lead to higher inflation. “We have this framework of flexible inflation targeting, but in such times it’s not sufficient,” he said, adding that fiscal coordination becomes critical “if the supply shock is as big as it is.”
“We are being more and more data dependent. We are taking it more meeting by meeting,” said the RBI governor. The RBI is being flexible in its approach and is ready to look through the shock if it’s transitory, “but if it is entrenched, we need to take action,” Malhotra said.
India’s consumer price index (CPI) inflation has risen to 3.48 per cent in April from 3.4 per cent in March signalling the first round of price pressures in the wake of the Middle East crisis.
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