India’s central bank has warned that the country’s fiscal deficit could be affected if oil prices continue to surge after an attack on Saudi Arabian oil facilities over the weekend.
“We should allow a few more days to see how the situation plays out before taking a final view,” Reserve Bank of India Governor Shaktikanta Das told a television news channel “Depending on how long it persists it will have some impact on the current account deficit and further perhaps on the fiscal deficit if it lasts longer.”
Current account deficit measures the difference between the value of the goods and services a country imports and the value of its exports. A surge in crude prices could balloon India’s current account deficit, as the country happens to be the world’s third-biggest oil importer.
The Governor also expressed the apprehension that the current crisis will impact the Indian rupee and currencies across the world.
‘GDP numbers surprising’
Shaktikanta Das said the latest gross domestic growth figures had left him surprised. “The numbers definitely look much worse because in the first quarter we had projected 5.8% and I think almost everybody had projected not below 5.5% or so. But the number of 5% is a surprise. So we are analyzing why exactly it has happened.”
He stated that the central bank was of the view that the country’s growth was losing traction. “Overall if you see right from the beginning of the year, right from the February monetary policy committee when we started cutting the rates by 25 basis points, if you refer back to the minutes . . . it was very clear that there are signs of a slowdown happening.” The central bank has so far cut the interest rates by 110 basis points this year.
The central bank governor was hopeful that the merger of state-owned banks would make them stronger, but said the transition process needs to be managed well. “The banks themselves have to see that the transition is smooth, non-disruptive and the normal activities of the bank like the credit disbursement or the loan recoveries and other things they continue to happen in a seamless manner,” he said.