Bedevilled by high food prices, the Modi-government is now saddled with imported inflation as Brent crude zoomed to a 10-month high of $90.21 a barrel after Saudi Arabia and Russia extended their voluntary supply cuts till December.
Analysts said any populist move to cut fuel excise duties before the assembly elections later in the year could have fiscal implications.
Simultaneously, higher crude prices would garner revenue in the form of windfall taxes for the government.
N.R. Bhanumurthy, vice-chancellor, Dr BR Ambedkar School of Economics University, Bangalore, said the inflationary pressure from agri products is higher than for crude oil.
He said the major global economies including China are slowing down and the production cut is a measure to ramp up the prices to counter the trend.
He said India is getting much of the oil from Russia, which would also reduce the impact of imported inflation.
Sunil Kumar Sinha, principal economist, India Ratings, warned imported crude inflation would have a cascading effect on the economy.
“If global spike in prices are passed on it would push up inflation. If oil marketing companies absorb the increase, after a point government has to provide some kind of subsidy or if the government cuts duties, it would have fiscal implications.”
Vivek Kumar, economist, QuantEco Research, said: “The government has levers in the form of administrative price dampeners to soften the overall impact, which it has been using in recent months.”
“Moreover, commodity prices in general are still somewhat lower vis-a-vis FY23 levels.”