Surge in oil prices behind inflation in India, IMF says monetary tightening needed

The country’s economy is likely to grow at 8.2 per cent in 2022-23, down 0.8 per percentage point

The surge in oil prices due to the Ukrainian war has pushed up inflation in India, which needs monetary tightening and measures to address structural weaknesses to improve growth potential, said a senior International Monetary Fund (IMF) official.

According to estimates, the country’s economy is likely to grow at 8.2 per cent in 2022-23, down 0.8 per percentage point, said Anne-Marie Gulde-Wolf, Acting Director of the IMF’s Asia and Pacific Department.

"So while still strong, it is a significant downgrade. We really see the difficult policy trade-off for policymakers supporting the worldwide controlling of inflation, which has already started going up," she told reporters at a news conference here.

"The reason why inflation has gone up is really the spillovers from the war in Ukraine, where India is particularly dependent on oil and commodity imports," she said.

In the short run, we think a commodity fiscal stance is appropriate, supporting vulnerable households and putting the focus on infrastructure investment, the IMF official said responding to a question.

She recommended monetary tightening and measures to check structural weaknesses.

"Well-communicated monetary policy actions are needed but probably some monetary tightening," she added.