Center took stock, PM spoke to Putin

The government is closely monitoring the rapidly changing geopolitical situation before taking any policy action.

In an interview, Finance Secretary TV Somanathan assured that the government is prepared to handle the economic impact of the crisis. Somanathan said, “We are well prepared to handle this and are ready to face the need that may arise.”

Economists expect retail inflation to be above 6% unless energy prices ease, current account deficit (CAD), depreciation of the rupee against the dollar and supply chain disruptions. However, the impact on the fiscal side may be limited due to budget estimates or the crisis as the buffer provides for contingencies, said a second government official requesting anonymity.

On Thursday, Russian military forces launched a full-scale invasion of Ukraine, prompting the US to threaten severe sanctions on Russia. US President Joe Biden will meet with G7 leaders and US allies and partner countries to discuss further course of action.

Modi on Thursday chaired a meeting of the Cabinet Committee on Security (CCS) to discuss the impact of Russia’s military operation in Ukraine. It was attended by cabinet ministers including Home Minister Amit Shah, National Security Advisor Ajit Doval, Prime Minister PK Mishra, Finance Minister Nirmala Sitharaman, Defense Minister Rajnath Singh, External Affairs Minister S Jaishankar, Petroleum Minister Hardeep Singh Puri and Commerce. and Industries Minister Piyush Goyal.

Modi had a telephonic conversation with Russian President Vladimir Putin late on Thursday. “President Putin briefs Prime Minister on recent developments regarding Ukraine. Modi reiterated his long-standing belief that differences between Russia and the NATO grouping can only be resolved through honest and sincere dialogue. He called for an immediate end to the violence and called on all sides to make concerted efforts to return to the path of diplomatic dialogue and dialogue.

The US on Tuesday announced the first set of sanctions against the European nation, targeting Russian banks and sovereign debt. In addition, Russia faces the threat of being cut off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the global financial transaction messaging system. In addition, strict sanctions are expected on Russian financial institutions such as Sberbank and VTB.

Former chief statistician of India Pranab Sen said that with the oil price almost 70% higher than last year, this could translate into a two per cent rise in the consumer price index.

“The CPI will be over 6% until oil prices start to fall,” said Sen, country director of the International Growth Center.

lack of Yuvika Singhal, Economist at QuantEco Research, said a reduction in excise duty on petrol and diesel from 5 to 8-10 bps has an impact on CPI inflation and indirect or equal second order.

The CAD is expected to widen and depreciate the rupee. “If Indian crude oil averages $100 a barrel during FY23, the current account deficit could widen to 2.3-2.5% of GDP,” said Aditi Nair, chief economist at ICRA. The CAD is the difference between the country’s overall foreign receipts and payments and is projected to touch 1.9% of GDP in 2020-21 from a surplus of 0.9% of GDP.

According to Singhal, the Indian currency is also expected to decline at 76-77 levels against the dollar in the next three months. He said a $10 per barrel increase in the Indian crude basket could cut the annual GDP growth forecast by 10 bps.

At an industry event on Thursday, Chief Economic Adviser V. Ananth Nageswaran said that while the Indian economy is headed for recovery, high crude oil prices are a matter of concern. However, he added that the impact on the Indian economy would depend on how long these high prices persist.

Economists also suggested that the government should consider cutting excise duty on petrol and diesel to address inflation concerns.

“If energy prices remain high, the government may need to take steps to control inflation. HDFC Bank Chief Economist Abheek Barua said, “A hike in interest rates will lead to an inflationary trend, and the optimal response will be through excise duty.”

“While there may be a short-term rise in oil and commodity prices and some supply chain disruptions, we do not expect such a situation to last for long. “There is likely to be a global supply-side intervention led by the US,” another government official said. “Oil prices could start coming down in a few weeks or months. The US may allow Iran to export more oil, which could add up to 3 million barrels a day supply.”

a Expenditure on the exchequer due to 1 cut in excise duty on petrol 4,000-5,000 crore, while the same for diesel cost 14,000-15,000 crores.