India’s economy could return to the trajectory to grow by 7% and even more in the fiscal year through March 2027 if oil prices remain close to the current $70 per barrel, according to a senior official at India’s central bank.
Oil prices at about $70 a barrel eased tensions in the Middle East, and a pick-up in tanker traffic at the Strait of Hormuz would reduce upward pressure on India’s inflation and improve the outlook for its economy, Nagesh Kumar, an external member of the Reserve Bank of India’s monetary policy committee, told Bloomberg in an interview published on Thursday.
Three weeks ago, the Reserve Bank of India (RBI) downgraded its growth projection to 6.6% for the fiscal year to March 2027, amid uncertainty about when the Middle East crisis would end.
India’s economy remains resilient to the external shocks, but the oil supply crisis posed near-term downside risks to economic growth and upside risks to inflation, the RBI said at the end of May.
India, which imports more than 85% of the oil it consumes, received about half of all its imports from the Middle East before the war. Now, state-owned and private refiners are looking to diversify imports, including by taking in record volumes of Russian oil, and turning to Venezuela and Brazil for additional crude to offset the lost Middle Eastern supply.
Lower oil prices, if they stay at the current levels, would bolster India’s economy and reduce the pressure on its public finances, including the budget deficit and the current account.
As of Thursday in early Asian trade, Brent Crude prices were down by about 1% and traded at just below $73 per barrel, while the U.S. benchmark, WTI Crude, had slipped below $70 and was at $69.86, down by 0.68% on the day. Oil prices have dropped throughout this week as the market hopes the tentative reopening of the Strait of Hormuz would boost crude supply in the coming months.
By Tsvetana Paraskova for Oilprice.com
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