India says rising oil prices a concern, but economic outlook ‘bright’

NEW DELHI (Reuters): Rising oil prices are a concern for the Indian economy but its outlook remains bright after better September monsoons and a retreat in the prices of some key food items, the government said in its monthly economic report on Friday.

The comment comes as oil prices rose to 10-month highs earlier this week before easing, on extended production cuts from key suppliers Saudi Arabia and Russia.

India, the world’s third-largest energy importer, purchases more than 80% of its crude oil from international markets.

“The recent run-up in oil prices is an emerging concern. But, no alarms yet,” the government said in its report.

India’s economic outlook for the fiscal year 2023/24 remains “bright” after better September monsoon rains, the government added.

India is forecast to receive heavy monsoon rains at the tail end of the four-month season after the driest August in more than a century hit some summer crops.

Prices of some key food items that drove the inflation rate above 7% in July are easing, the government said in its report.

“With vegetable prices correcting and government and monetary measures in place, inflation is expected to trend downward in the coming months,” the government said.

India’s retail inflation (INCPIY=ECI) eased in August as food prices moderated, but held above the upper end of the Reserve Bank of India’s 2%-6% target for a second month.

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However, the RBI was not expected to hike its key policy rate anytime soon and instead start cutting in the second quarter of 2024.

Food prices have been a key concern for policymakers since last year as erratic weather conditions have hurt the output of vegetables, milk and cereals.

India’s baseline estimate for economic growth is 6.5%, the government added.