India’s Finance Ministry Raises Concerns over Crude Oil Prices and Deficit Monsoon

The finance ministry has expressed concerns over the recent surge in crude oil prices and the impact of a deficit monsoon in August on Kharif and Rabi crops. These issues need to be thoroughly assessed to understand their potential implications.

Fortunately, the latest high-frequency indicators for the second quarter of FY24 show positive developments. The retreat in food prices and improved rainfall in September have contributed to a favorable economic outlook. In its monthly economic report for August, the finance ministry emphasized that India’s economic activity has maintained its momentum. The monsoon deficit from August has been partially addressed in September, which is encouraging. Additionally, the prices of selected food items that previously drove the inflation rate above 7 percent in July are now declining.

However, the finance ministry acknowledges the emerging concern of the recent surge in oil prices. Although there are no major alarms yet, this development requires attention. Furthermore, the deficit monsoon in August has affected the Kharif and Rabi crops, posing further challenges that need to be evaluated.

While there is potential for a stock market correction and geopolitical developments to impact investment sentiment in the second half of the financial year, the finance ministry believes that the underlying economic activity should remain relatively stable. Bright spots such as corporate profitability, private sector capital formation, bank credit growth, and activity in the construction sector offset these risks. As a result, the ministry maintains a 6.5 percent real GDP growth estimate for FY24 with symmetric risk.

The decision by Saudi Arabia and Russia to extend production cuts until the end of 2023 has contributed to the increase in crude oil prices. On September 22, oil prices rose due to concerns about the supply following Moscow’s temporary ban on fuel exports.

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