No major inflation risk seen if Russian oil imports fall, says RBI Guv Sanjay Malhotra

Sanjay Malhotra, Governor, Reserve Bank of India

The Reserve Bank of India (RBI) does not anticipate any significant inflationary pressure even if India is forced to reduce its purchases of discounted Russian crude oil, Governor Sanjay Malhotra said at the post-policy press conference on Wednesday.

Responding to a question on the potential inflationary impact of a sharp drop in Russian oil imports, currently a major part of India’s crude basket, Deputy Governor Poonam Gupta also acknowledged that crude oil is a critical component in the inflation equation. However, she stressed that multiple factors would influence the final outcome.

“It’s not only Russian oil that India imports. We source crude from a wide range of countries, and this mix keeps evolving. If the composition changes, the impact on prices will depend on global crude dynamics,” Gupta said.

Governor Malhotra said, that the government’s fiscal response would play a key role in managing any potential shocks. “A lot depends on how much of the upward or downward pressure is absorbed by the government through excise duties or other tariffs,” he noted, suggesting that adequate fiscal buffers are in place.

Malhotra added, while the RBI has not conducted a dedicated study on the inflation impact of a decline in Russian crude imports, he remains confident in the system’s ability to absorb such changes.

“We don’t see any major impact on inflation at this point, because we believe the government will take appropriate fiscal measures if needed,” Malhotra said.

India’s oil imports from Russia have surged since the start of the Ukraine war, rising from just 1 percent of the crude basket before 2022 to nearly 40 percent at their peak.

In its August policy review, the RBI kept the repo rate unchanged at 5.5 percent, reaffirming its focus on maintaining price stability while supporting growth, while maintaining a ‘neutral’ stance.