Israel-Iran War Drives Oil Prices Up, But India’s Inflation Seen Under Control, Says CEA

Soaring prices have the potential to raise inflationary pressures and lower household purchasing power, especially in an economy where private consumption contributes nearly 60 per cent to GDP.

India’s Chief Economic Adviser V Anantha Nageswaran  downplayed concerns over the recent spike in oil prices, suggesting that the ongoing Middle East crisis is unlikely to cause any significant inflationary shock for now.

Speaking in an interview on Friday, Nageswaran emphasised that while elevated crude oil prices are “a matter of concern,” their current impact on India’s inflation outlook remains limited, reported Bloomberg.

Brent crude has surged by 20 per cent over the past month, fuelled by growing tensions between Israel and Iran. As the world’s third-largest importer of crude oil, India is particularly sensitive to fluctuations in global oil markets. Soaring prices have the potential to increase inflationary pressures and reduce household purchasing power, especially in an economy where private consumption contributes nearly 60 per cent to gross domestic product.

Inflationary Impact Contained — For Now

Despite these risks, Nageswaran remained cautiously optimistic. "It is too soon to get overly concerned yet," he stated, highlighting that if the price surge remains short-lived, India’s economy can withstand the temporary pressure. "I think it might have to take more than a quarter or even getting into a couple of quarters before we really have to worry," he explained.

According to Nageswaran, several favourable factors are currently supporting India’s economic stability. Cooling inflation, sufficient liquidity, and relatively low interest rates are creating conditions that allow the economy to remain resilient despite mounting global uncertainties. The government has forecasted economic growth in the range of 6.3 per cent to 6.8 per cent for the fiscal year ending March — a pace that, while slower than the recent 8 per cent average, still secures India’s position as the world’s fastest-growing major economy.

Good Monsoon Outlook Supports Growth Prospects

Adding to the positive outlook, Nageswaran noted that strong monsoon rains could further strengthen economic prospects. With more than half of India’s agricultural land dependent on monsoons, adequate rainfall can have a significant impact on farm output and rural incomes. “The underlying price pressures are quite absent and ample rainfall will also aid India’s economy,” he said.