The US-led coalition’s air strikes against Islamic State militants in Syria could push up oil prices, fan inflation and dash hopes of lower borrowing rates ahead of the festival season just when the Indian economy is showing signs of clawing out of its deepest slump in 25 years.
The unrest in oil-rich Middle East isn’t good news for millions of Indians who have been looking forward to lower fuel bills amid signs that petrol prices could come down further, as early as next week aided by plunging crude oil prices that touched $97 a barrel — the lowest in two years.
This had triggered hopes that the creeping increase in monthly diesel bill may also end soon, as the government could anytime announce de-regulation of diesel prices on the back of declining global oil prices.
Crude oil prices are perhaps the most important variable in India’s complex energy economics. Part of the reason for India's relative lack of competitiveness among Asian manufacturing exporters is its expensive energy.
Dismantling its high-cost energy economy has been a crusade India’s policymakers have long waged and overdependence on imported crude oil hasn’t helped.
The recent fall in crude to sub-$100 a barrel had raised hopes that India would finally be able to free-up diesel prices.
Market-determined fuel prices would cut subsidies and help cut taxes on petroleum products. This can offset the shocks when global crude prices shoot up. It remains to be seen how the escalation in crisis affects India's plans for that one big step in energy reforms.