IMF Forecasts Higher Oil Prices Will Be Passed On to Indian Consumers
India May Have to Pass on Higher Crude Oil Prices to Consumers
The International Monetary Fund (IMF) has warned that India will eventually need to pass on higher crude oil prices to consumers, as holding fuel prices artificially low for an extended period could distort market signals. This comes as the government weighs a potential increase in petrol and diesel prices.
Krishna Srinivasan, Director of the Asia Pacific Department at the IMF, made this statement on May 5 while speaking at an event organized by the National Council of Applied Economic Research (NCAER). In the interim, India can rely on fiscal measures such as adjustments in fertilizer subsidies and excise duty cuts to cushion the impact.
The remarks come as state-run oil marketing companies have been under pressure, with retail fuel prices remaining unchanged since the onset of the West Asia conflict. Meanwhile, global crude prices have surged, with Brent crude trading above $100 per barrel. India's crude basket price is currently around $118.70 per barrel as of April 30, amid escalating tensions involving Iran and the US in the Strait of Hormuz.
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The Petroleum and Natural Gas Minister, Hardeep Singh Puri, had earlier indicated that oil marketing companies were incurring losses of about Rs 24 per litre on petrol and Rs 30 per litre on diesel, as they continued to sell fuel below cost. Recent developments in the region have heightened supply concerns, with Iran reportedly ordering military strikes targeting the United Arab Emirates and a South Korean cargo vessel transiting the Strait of Hormuz on May 4.
Despite these risks, the IMF sees limited impact of the conflict on India's growth in its baseline scenario. In its latest outlook, the Fund raised India's growth forecast to 6.5 percent for FY27, up from 6.4 percent earlier, partly reflecting expectations of lower tariff barriers from the United States.
Comparison of India's Crude Basket Price and Global Crude Price
| Date | India's Crude Basket Price (USD per barrel) | Global Crude Price (USD per barrel) |
|---|---|---|
| April 30 | $118.70 | $100 |
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
IMF Growth Forecast for India
| Fiscal Year | IMF Growth Forecast (percent) |
|---|---|
| FY27 | 6.5 |
| FY26 | 6.4 |
Investor Takeaway
Investors should be prepared for potential price increases in petrol and diesel.
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