India's economic growth could be impacted by the Ukraine crisis, say expertsIndia is likely to rank among the emerging economies worst affected by the Russia-Ukrainecrisisas a surge in global prices of commodities is set to upendspendingplansand derail its pandemic recovery, analysts say.If the conflict lasts, India, which imports close to 85 percentof its oil needs, is likely to see its fiscal, trade and account deficits swelled by a surge in crude oil prices to their highest in more than a decade, which will also fuel inflation."The contagion from currently rising geopolitical tension is unlikely to remain limited to financial assets and warrants a change in our key macro forecasts for 2022-23," said Abheek Barua, chief economist at HDFC Bank.February's budget was based on an average oil price of $75 to $80 a barrel for the fiscal year starting from April 1, but Brent briefly soared on Monday to nearly $140, its highest in over a decade.A senior government official said if oil prices averaged $100 a barrel in the fiscal year to March 2023, thatcouldshave 90 basis points off growth, taking it below 8 per cent, from a forecast range of 8 per centto 8.5 per cent.In such a scenario, inflation is seen rising by 100 basis points and the current account deficitcouldwiden by 120 basis points to 2.3 per centto 2.4 percentof GDP.DBS Bank says every increase of $10 a barrel in the price of oil liftsIndia's consumer price index-based inflation by 20 to 25 basis points, widens the current account gap by 0.3 per centof GDP, and poses a downside risk of 15 basis points to growth.The oil price spike is also expected to pressure the government to lower fuel levies and reduce the burden on consumers.
That in turn would dent revenues, narrowing the room for capitalspendingneeded to boost growth.Retail fuel pricescouldrise 10 per centor more, starting from this week, as results flow in from elections in key states.
To avoid voter backlash at the polls, state-run oil companies have not raised prices since November4."Given the bunched-up increase in the offing, excise duty cuts might be undertaken, to ease pressure on purchasing power and incomes," said Radhika Rao, an economist with DBS Bank.But every rupee cut from fuel levies shrinks revenue for the government's coffers by 130 billion rupees ($1.7 billion) a year.
Economists say Indiacouldlose as much as 900 billion rupees in trying to lower pump prices.And a recent battering of markets, which forced a rethink ofplansfor an $8-billion initial public offer (IPO) of state-run Life Insurance Corporation (LIC) by the end of March, is likely to further dent the government's financial position.RATINGS RISKOn the plus side, the governmentcouldturn a profit by selling some of its vast grain stockpiles following a rise in global wheat prices thatcouldboost exports of the grain from India.Thatcoulddefray expenses on its vast annual purchases of grain at prices above global levels in the effort to support farm incomes.ButIndia's fiscal deficit had widened to a record 9.3 per centin the year that ended in March 2021, thanks to efforts to cushion the shock of the coronavirus pandemic and revive growth.That meant the ratio of debt to GDP shot up to more than 90 per cent, for the worst among similarly-rated emerging markets.AlthoughIndia's ratings have held steady, agencies have warned of long-term challenges and the need to cut the debt-to-GDP ratio to more sustainable levels.Government officials said the fiscal deficitcouldslip by 20 to 30 basis points from a target of 6.9 per centof GDP in the current fiscal year ending in March if LIC was not listed by then."The ratings agencies were not very happy with the fiscal consolidation path undertaken by us in the budget.
Further deteriorationcouldconcern them," said a second government official, who also spoke on condition of anonymity.The government is reworking some key budget figures and the outcome ofnextyear's spendingplanscouldlook very different from the budget outlined last month, he added.(Except for the headline, this story has not been edited by TheIndianSubcontinent staff and is published from a syndicated feed.)