Risk of oil price spike impacting FY25 growth is low: CEA V Anantha Nageswaran

Mumbai: The chief economic advisor V Anantha Nageswaran does not see the likely jump in oil prices due to global factors, including global slowdown and geo-political conflicts, impacting the domestic economy in a major manner next fiscal. Addressing the SBI-organised economic conclave here on Thursday, he based his optimism on the assumption that cooling off of economic activity will happen first before a decline in global interest rates.

"Therefore, I do not think energy demand will necessarily become sufficient enough to see oil prices spike up in 2024. Geopolitical situation and what is happening to cargo movements in the Red Sea are relevant factors, but not serious enough to slow demand massively. My view is that if oil prices rise, they will further cool down economic activities," Nageswaran said.

The economy is poised to grow 7 per cent this fiscal, according to the latest RBI forecast, which was upped by 50 bps from its earlier projection, while the government does not have a clear GDP number and believes the economy may clip between 6.5 per cent and 7 per cent.


"I don't see any reason to distrust the Reserve Bank's latest forecast of 7 per cent for this fiscal," Nageswaran said.

Quoting the latest financial stability report of the RBI, he said the Indian basket of crude price which was moderating for more than a year, began to trend upwards during July-October before beginning to decline in recent months.

Continuation of production cuts by the oil cartel OPEC+ along with mounting uncertainties stemming from the conflict in West Asia could keep prices volatile in the near-term and pose risks to inflation outlook.

An oil price surge of 10 per cent from the baseline of USD 85 a barrel may weaken domestic growth by 15 basis points and increase inflation by 30 basis points, according to the RBI.