OPINION: Oil prices – Government between a rock and a hard place

OPINION: Oil prices – Government between a rock and a hard place

Just as the Indian economy was limping back to normalcy after an elongated period of subdued growth, oil prices have thrown a spanner in the works right on cue.

Oil prices, which had fallen to sub-$40 levels, are back with a vengeance having climbed to over $75 a barrel recently; the highest since 2014. It is expected to go even higher with some reports suggesting that Saudi Arabia is trying to target a price of $80 per barrel. The economic crisis in Venezuela and the inevitable sanctions on Iran by the United States will only take more oil off the world markets and worsen the situation.

As usual, India faces worries of rising inflation, government spending and current account deficit. The last time oil prices were at their peak, India was being pegged as one of the “fragile five” economies that were most at risk from the infamous “taper tantrum” of the US Federal Reserve.

At the time, the current account levels of the economy were expectedly high at 4.8 percent due to the massive import bill. Then, some responsible policy activism by the Reserve Bank of India and a crash in the world oil markets brought India back from the brink to a point where the current account deficit had narrowed down to 0.7 percent in 2016-17. Read More

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