West Asia crisis: RBI Governor says it's a matter of time before government increases fuel prices

Zurich: Reserve Bank of India Governor Sanjay Malhotra has warned that India is beginning to feel the impact of global disruptions caused by the ongoing West Asia conflict, particularly through rising crude oil prices. Speaking at the 12th High-Level Conference on the International Monetary System organised by the IMF and the Swiss National Bank, Malhotra said the government has so far absorbed much of the burden by keeping petrol and diesel prices unchanged, cutting duties, and allowing only limited hikes in controlled fuel prices such as gas.

However, he cautioned that if the disruptions continue for a prolonged period, the government may eventually have to pass some of the increased costs on to consumers. He noted that the conflict has already persisted for around 75 days, making the current arrangement difficult to sustain indefinitely.

Malhotra said the government has maintained fiscal discipline despite global challenges, reducing the fiscal deficit from 9.2 per cent of GDP during the pandemic to nearly 4.3 per cent. He stressed that monetary policy frameworks remain essential in controlling inflation expectations, though monetary policy alone may not be enough to handle large supply-side shocks.

The RBI Governor also highlighted the growing uncertainty faced by central banks worldwide, saying policymakers must remain cautious, flexible and gradual in their responses rather than relying on highly precise policy actions. He added that effective communication and central bank independence are vital to maintaining credibility during uncertain times.

Pointing to India's vulnerability to external shocks, Malhotra said food still accounts for nearly 40 per cent of the country's Consumer Price Index basket, making inflation management challenging. He also underlined India's strong economic dependence on the Middle East, noting that the region accounts for one-sixth of India's imports and exports, nearly 40 per cent of remittances and fertiliser imports, and around 60 per cent of gas supplies. (ANI)

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