Oil price crisis to have serious policy implications
For a nation which imports two-thirds of its crude oil requirement through imports, spurt in rates may spell bad news as the Government will have to make a tough choice between shelling out more subsidy and passing the rise to consumers.
"…fragility of recovery of world economy, uncertainty created because of political unrest in Middle East and North Africa have serious implications for Indian policymakers," Mukherjee told reporters after addressing the RBI board here.
Though he refrained from describing the volatility in crude oil prices as "explosive", the Minister said it was "deepening the uncertainty" in the global economic recovery.
His comments come at a time when international crude prices have soared above USD 116 per barrel on account of the political unrest in parts of Middle East and North Africa, including Libya, a major oil exporter and OPEC member.
For 2011-12, the finance ministry has estimated Rs 23,640 crore in oil subsidy, lower than Rs 38,386 crore for current fiscal. The government will be required to shell out more money in case the prices rise continues.
India`s oil imports grew by 7.8 per cent to USD 7.85 billion in January, taking the import bill during April- January, 2010-11, to USD 79.95 billion.
The Finance Minister, however, exuded the confidence that the Government in consultations with the Reserve Bank of India (RBI) will be able to deal with the challenging situation arising out of oil crisis coupled with fragile global economic recovery.
"I shall assure you, in consultation with RBI, as we have overcome the financial crisis from the mid-1980s, I am confident that we will be able to face the challenges," Mukherjee said.
Although some advanced economies like the US are on recovery path, many Euro Zone countries including Ireland, Spain and Portugal are facing sovereign debt crisis.
"There is problem of whether the sovereign debt crisis …(in some countries of) Euro Zone would confine within the countries or it will have its adverse impact in rest of the Europe," he said.
Fast economic recovery in European Union is of great significance for India as the 27-nation bloc accounts for about one-third of its exports, besides source of substantial foreign direct investment.
"Rapid and robust recovery of Europe is important for our own," the Minister added.