How can higher oil prices impact India?
The Department of Economic Affairs under the Union Finance Ministry in its recent monthly economic review said that the scenario building exercises on the macroeconomic impacts of higher oil prices suggest that crude oil prices must remain above USD 100 per barrel for a sustained period for macroeconomic aggregates to reflect the strain. Given India’s heavy reliance on imported crude, it could feed through into higher imported inflation by raising fuel costs and weakening the rupee, complicating the inflation outlook for India, it said.
The price increase could affect India’s current account deficit (CAD). According to ICRA, a USD 10 per barrel increase in crude oil prices will increase the country’s CAD by 0.3 per cent of the GDP. A prolonged increase in prices could stoke inflationary pressures.
How will higher oil prices impact inflation?
According to the Reserve Bank of India (RBI), a 10 per cent rise in global crude prices could result in an increase in inflation by 30 basis points and growth may be lower by around 15 basis points. Alternatively, a quicker resolution of geopolitical conflicts may dampen crude oil prices. If crude oil prices are lower by 10 per cent relative to the baseline, inflation could be lower by around 30 basis points and boost GDP growth by 15 basis points. According to Dipti Deshpande, Principal Economist, Crisil Ltd., fuel and transport inflation has a combined weight of 14.2 per cent in overall Consumer Price Index and could be the first to face pressures from higher oil and gas prices due to supply shocks. Rising global fuel prices could also put upward pressure on inflation in the transportation category, particularly petrol, diesel, compressed natural gas and airfare, she said. LPG prices have been increased by Rs 60 per cylinder, which could push LPG inflation from March onwards, from 1.6 per cent in February, Deshpande said.
What is the current inflation scenario in India?
India’s retail inflation edged up to a 11-month high of 3.2 per cent in February 2026 from 2.7 per cent in the previous month. This was due to higher food inflation which increased to 3.5 per cent in February 2026 from 2.1 per cent in January 2026. This data was before the outbreak of the Middle East conflict. So for this fiscal (April-February), the inflation has averaged 1.9 per cent. India Ratings expects March 2026 retail inflation to increase to 3.7 per cent.
Will oil prices have a bearing on inflation?
India has significantly diversified its sources of crude oil imports. Over the past decade, the number of countries from which the country imports crude oil has expanded from 27 to more than 40, as per the Finance Ministry’s monthly economic review report. The impact on inflation is not estimated to be substantial at this point, it added. According to a statement made by Union Minister for Petroleum and Natural Gas Shri Hardeep Singh Puri in Parliament, non-Hormuz sourcing has risen to approximately 70 per cent of crude imports, up from 55 per cent before the conflict began. Availability of petrol, diesel, aviation turbine fuel, kerosene and fuel oil is fully assured, he said.
Despite the hardening of crude and petroleum product prices, the retail prices of petrol and diesel have not increased and are expected to remain the same in the near-term, according to Dr. Devendra Pant, Chief Economist, India Ratings and Research. Crisil expects CPI to rise 4.3 per cent on an average in fiscal 2027. This will be within the RBI’s current inflation target range of 4 per cent (with a tolerance band of plus or minus 2 per cent). The RBI’s inflation targeting range is up for a review. India Ratings expects a long pause from RBI on policy rates. The uncertainty in the Middle East, the likelihood of heat waves this summer and expectation of a potential El Nino and its bearing on food inflation are key monitorable, according to analysts.