How India can insulate inflation from soaring crude oil prices — IMF explains

To remain insulated from soaring crude oil prices, International Monetary Fund (IMF) has suggested Indian government to adopt monetary tightening and measures to check structural weaknesses. IMF believes that rise in crude oil price in the wake of Russia-Ukraine war is the prime reason for rise in Indian inflation. It said that commodity fiscal stance, supporting vulnerable households and focus on infrastructure investments would enable India to keep its inflation insulated from rising crude oil prices.

Anne-Marie Gulde-Wolf, Acting Director of the IMF’s Asia and Pacific Department said, "The reason why inflation has gone up is really the spillovers from the war in Ukraine, where India is particularly dependent on oil and commodity imports."

On what is appropriate for India inn current situation, she said, "We think a commodity fiscal stance is appropriate, supporting vulnerable households and putting focus on infrastructure investment." The IMF official recommended monetary tightening and measures to check structural weaknesses citing, "Well-communicated monetary policy actions are needed but probably some monetary tightening."

"To enhance India's growth potential, it is important to address structural weaknesses of the Indian economy that provide bottlenecks to achieve longer-lasting growth. These bottlenecks are in the labour market, land market, better educational outcomes, and very much also getting higher share of females into the labour force," the IMF official added.

She said that potential is definitely there but it required policy actions mentioned above to keep inflation insulated from the soaring oil price across globe.

She also said that India's economic growth for FY22 is now estimated at 7.20 per cent which was earlier estimated at 8.0 per cent.