Spiking oil prices pose a clear and present danger to Indian economic growth, finance minister Pranab Mukherjee said yesterday.
If oil import costs continue to mount, India would be forced to downgrade economic growth forecasts for the current year, Mukherjee said in Hanoi.
New Delhi was predicting GDP to grow by between 8.75% and 9.25% in the current financial year – but that forecast would come under threat if the cost of importing energy to fuel India’s booming economy remained high and continued to rise.
The finance minister warned that unsustainably high fuel costs could dampen GDP growth to as little as 8%. “If oil prices continue to exert [economic] pressures at the existing level, it would be difficult for us to manage inflation and achieve targeted [rates of] GDP growth,” Mukherjee told a press conference.
The warning came as India is struggling to meet its budget forecasts, constrain rising food prices, and find the financial means to continue to work on the country’s woeful infrastructure.
But it was inflation that really concerned Indian legislators, Mukherjee said. India’s food price index rose 8.53% in the year to April 23, with fuel prices jumping 13.53% over the same period. Fuel costs are expected to stay high for the near future at least, analysts have warned.
Earlier this week, Mukherjee had warned again about the damage inflation threatened to wreak on economic growth. On Tuesday, India raised interest rates by more than expected – 50 basis points – in an attempt to tackle price pressure.
Mukherjee said that most finance ministers shared the same concerns about price pressures. “Inflation is a measure of concern to India and to other developing countries.
“At a meeting of finance ministers yesterday I pointed out that increasing prices was a result not just of the demand-and-supply mechanism, but of hot money flowing into commodity markets in search of higher concerns.”
Many Asian nations, including China and Vietnam, are struggling to dampen down stubbornly high prices. So far India is one of the few nations to warn starkly that high prices threaten economic growth.
Mukherjee also chided the ADB for not doing more to tackle inflation, particularly food inflation, by investing in much-needed agricultural projects across the region. “Any surge in commodity prices not only has substantial repercussions for sustained economic growth but increases poverty, under-nutrition and instability,” he warned.
“As inflation [...] has a disproportionately large impact on the poor, the ADB needs to come to terms with its role in promoting productivity in agriculture and natural resources for food security. [...] Disengagement is not an option.
The bank needs to focus on linking farms to markets and promote research activities and efforts, including through private-public partnerships, dry-land farming, efficient use of water, rain-fed irrigation, development of drought-resistant varieties of seeds and other similar interventions.
Mukherjee sounded a positive note about India’s broader economic prospects. Strong private consumption remained robust, he announced, while export figures remained strong, having rebounded strongly since the financial crisis.