Pass higher crude prices to consumers, IMF director advises India

With the ongoing expectations of an increase in the retail prices of petrol and diesel, the International Monetary Fund (IMF) has reportedly suggested a pass through of higher crude prices to consumers, while adding the India had headroom to navigate the current energy shock due to the closure of the Strait of Hormuz, as per reports.

At an event organised by the National Council of Applied Economic Research (NCAER), IMF Asia-Pacific Director Krishna Srinivasan reportedly said that while the Indian government has reduced excise duties on fuel and continued fertiliser subsidies, such measures cannot be sustained indefinitely due to limited fiscal space. 

He reportedly stressed that, eventually, market-driven price signals must be allowed to function, especially during periods of supply constraints, as higher prices can help moderate demand. However, he supported targeted subsidies for poor and vulnerable groups.

As per reports, responding to the IMF official’s remarks, Poonam Gupta argued that India remains in a comparatively stronger fiscal position than many other economies. 

She reportedly highlighted that India’s prudent fiscal management, ongoing fiscal consolidation, and robust economic growth have strengthened the country’s economic outlook.

She also pointed out that the IMF had revised India’s growth forecasts upward from its earlier estimates, reflecting the resilience of the Indian economy amid strong growth and controlled inflation, as per reports.

On monetary policy, Gupta reportedly suggested that India could consider lowering its inflation target and narrowing the tolerance band in the future, provided economic growth remains stable and inflation stays under control over the next five years.