If oil remains above $110 a barrel, burden will be shared by govt, OMCs and consumers: CEA

Dr V Anantha Nageswaran, new Chief Economic Advisor.

If global crude oil prices remain above the $110 per barrel-mark for more than a quarter, then the government, oil marketing companies and consumers will have to "share the burden", Chief Economic Adviser V Anantha Nageswaran told CNBC TV18 on April 12.

In an exclusive interview with the news channel, Nageswaran said the oil price outcome will depend on "demand disruption caused due to high prices".

"I feel if the prices persistently remain above $110 per barrel, then a burden sharing needs to take place. It will involve the government, the oil marketing companies and the consumers," the CEA said.

"The burden needs to be shared because this is a global supply shock, and therefore, all of us would have to bear the consequences. It has not been engineered by anyone," Nageswaran added.

In terms of policy, a choice has to be made on providing relief in a targeted manner or providing a blanket tax reduction, the CEA said.

"What the government has done with this extension of the Pradhan Mantri Garib Kalyan Yojana (PMKGY) is that it used the fiscal space to provide a targeted relief," Nageswaran added.

While the CEA's remarks suggested that the government's emphasis is on targeted relief through PMKGY or the free ration scheme, the Centre had, in November last year, slashed excise duty on petrol by Rs 5 and diesel by Rs 10 to provide direct relief to the consumers.

On being asked whether another excise duty cut could hit the government's expenditure, Nageswaran said it would depend on the quantum of reduction.

"It depends on how sooner or how later this becomes necessary, and the amount of tax cut, and also whether it would impact the 6.4 percent of GDP budget deficit that we have budgeted for," the CEA said, adding that the flow of revenues would also play a role.

The surge in crude prices, since the eruption of Russia-Ukraine war, has also stoked inflation globally. This has prompted major central banks across the world to revise their key policy rates. However, the monetary policy committee of the Reserve Bank of India (RBI) has kept the key lending rate unchanged at four percent.

While the CEA did not comment on the decision taken by the RBI's MPC, he expressed surprise at the "hawkishness" of the US Federal Reserve.

"I am honestly surprised at the hawkishness that Federal Reserve members have displayed over the past few weeks...If their projections are right, then fed funds rate are expected at 2.75 percent by the end of 2023," Nageswaran said, adding that it remains to be seen whether the reaction from the US economy or the financial market would allow them to hike the rate in the projected manner.

The last time when the Fed was embarking on a rate-normalisation policy, they had to stop the rate hiking at 2.5 percent in 2018, the CEA recalled, but added that the Fed action is "likely to be front-loaded" this time.

Before the first quarter ends in India, there will be two Fed meetings to watch out - in May and June - which will provide an insight on how front-loaded the Fed's action would be, he further said.