How India Can Insulate Inflation From Soaring Crude Oil Prices – IMF Explains

To stay sheltered from soaring crude oil prices, the International Monetary Fund (IMF) suggested the Indian government adopt monetary tightening and measures to check structural weaknesses. The IMF believes that the rise in the price of crude oil following the Russian-Ukrainian war is the main reason for the rise in Indian inflation. He said the fiscal stance on commodities, support for vulnerable households and a focus on infrastructure investment would help India keep inflation sheltered from rising crude oil prices.

Anne-Marie Gulde-Wolf, Acting Director of the IMF’s Asia and Pacific Department, said: “The reason inflation has risen is actually the fallout from the war in Ukraine, where India is particularly dependent on imports of oil and raw materials.

On what is appropriate for India’s current situation, she said: “We believe that a commodity fiscal policy is appropriate, supporting vulnerable households and emphasizing investment in infrastructure”. The IMF official recommended monetary tightening and measures to check for structural weaknesses, citing: “Well-communicated monetary policy actions are needed, but probably monetary tightening.”

“To improve India’s growth potential, it is important to address the structural weaknesses in the Indian economy that create bottlenecks to achieve more sustainable growth. These bottlenecks lie on the labor market, the land market, better educational outcomes and, to a large extent, a higher share of women in the labor force,” the IMF official added.

She said the potential was definitely there, but it needed the policy measures mentioned above to keep inflation in check against soaring oil prices around the world.

She also said that India’s FY22 economic growth is now estimated at 7.20%, down from 8.0% previously.

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