NEW DELHI: Lower crude oil prices is likely to moderate inflation, creating space for more monetary policy accommodation, chief economic adviser V Anantha Nageswaran said on Wednesday.
The Reserve Bank of India on Wednesday cut interest rates by a quarter point and shifted from neutral to accommodative policy stance. It also downgraded the GDP growth forecast for the current fiscal year to 6.5% from 6.7% earlier.
“I think it (benign crude prices) will at least open up the space for more monetary accommodation to that extent. Also, there is a relief for households and businesses indirectly,” Nageswaran said. “We have had two rate cuts (including one in February), and we have also heard from the central bank that they are accommodating more now. So hopefully, that means further rate cuts…subject to how inflation behaves,” Nageswaran said at the Express Idea Exchange.
The rate cuts will give some fillip to consumption spending, which should give visibility to the corporations for capital formation, he said.
The finance ministry’s top economist said no one imagined that crude prices would come down to around $60/barrel so quickly, which is a positive for moderating inflation.
Even if the government absorbs the benefit of lower oil prices, the benefits will come via the lower borrowings and, therefore, lower bondage, which then cascades down into private sector interest rates as well. “So whichever way you slice it, it’s a huge relief in the current circumstances.”
RBI governor Sanjay Malhotra said US tariffs would be a “growth dampener”.
The Donald Trump administration’s reciprocal tariff announcement could reduce India’s economic growth by up to 60 basis points as against 6.5% forecast for FY26 by analysts and research organisations. Following the US tariff action, Morgan Stanley in a note said India’s GDP growth could fall short of its 6.5% estimate by 30-60 bps in FY26.
Nageswaran conceded that it would be difficult for him to pinpoint the impact of US tariffs on India as against the Economic Survey projection made on January 31 that the country’s economy may expand between 6.3% to 6.8%.
“I am grappling with both the threats that we are facing and also some of the other additional opportunities that have opened up in the form of…crude oil prices $63/barrel,” he said.
To take advantage of higher US tariffs on Chinese goods, Nageswara said India has to take a hard look at the multi-layered duty structure.
“..China’s export success story of the last 20-30 years is their duties on input products were very low. So, I think we need to take a hard look at our not just the number of layers of duty, which we have tried to simplify, we have taken the first step, but it in this budget, to some extent, in the July budget as well. But also need to look at the duty structure between primary and intermediate products, etc”
That is a way to sort of boost India’s competitiveness along with bringing efficiency in customs clearances and logistics cost, he added.
Source: The Financial Express
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