$100 Oil Shock Looms Over India's Economy

With Brent Crude prices hovering near $100 per barrel after US-Iran strikes escalated, Senior Economist Mitali Nikore warns that India faces a real economic impact from this oil shock.

Nikore estimates that for every $10 increase in global Brent crude prices, India's current account deficit bears an additional burden of 30 paise, or 0.3 basis points. This cumulative effect may not be immediately apparent but adds up over time.

The economist believes the government has cushioned retail fuel prices effectively, preventing inflation from reaching alarming levels. However, if Brent crude stays above $100 per barrel, this could pose a risk to India's inflation trajectory next year.

Nikore also anticipates that airlines will attempt to pass on the increased jet fuel costs to consumers in the form of higher airfares, especially ahead of the festive season. Nevertheless, she expects the regulator, Airports Authority of India, to intervene and curb this impact on consumers, as seen in previous instances.