The impact of the huge increase in crude oil prices due to the war in West Asia has also started to be seen on the Indian economy.
The impact of the sharp increase in crude oil prices due to the war in West Asia has also started to be seen on the Indian economy. According to government data, the Wholesale Price Index (WPI) rose by 8.3 percent in April, which is a record monthly increase in the last four years. Earlier, in March, this index (which records the wholesale inflation rate) had increased by 3.9 percent. Before March, the same rate was 2.3 percent in February.
This shows how deeply the war that began on February 28 has affected the Indian wholesale market. The central government has been acknowledging that despite its strength, the Indian economy cannot remain immune to the impact of crude oil price fluctuations. India has to import 83 percent of its petroleum for its consumption needs.
Although only a fifth of India's crude oil imports come from West Asia, especially the Gulf countries, disruptions in this segment directly impact the performance and profitability of Indian refineries. However, a temporary shutdown of oil production in West Asia or disruptions in the supply chain can send crude oil prices soaring. This has been happening continuously since February 28 and has pushed crude oil prices up from $69 per barrel in February to an average of $113-114 per barrel. Experts believe that even if a deal to end the war between the US and Iran is reached in the next few days, crude oil prices will not come down immediately.
Even if everything were normal, it is considered impossible for these prices to come down to the February level. Such is the nature of the market economy; it shows the same pace in increasing prices, but not in decreasing them. Therefore, it seems unnatural for the upward trend in the index to reverse. It is true that the trend of increase in the Consumer Price Index (CPI) is relatively slow compared to the Wholesale Price Index. This rate was 4.2 percent in April and 3.1 percent in March. The CPI is also defined as the retail inflation rate. The large difference in the rise in wholesale and retail prices during the months of March and April gives the impression that inflation for the average consumer has not increased as much as the Wholesale Price Index indicated.
In fact, the number of items included in the wholesale price index is three times that of the items included in the CPI. The items specified for determining the CPI i.e. retail inflation rate include food items, grains, fruits and vegetables, milk and milk products and daily use items. Their prices do not increase much especially in winter. Due to this, governments are in a position to claim that they have kept inflation under control. The wholesale price index includes petroleum products, plastics, industrial and construction raw materials, chemicals, chemical fertilizers and many other things that do not come under the ambit of daily use items for the common consumer. Due to this, the surge in the wholesale market does not hurt the common consumer in the same way as the retail price increase.
The government's increase in retail prices of petrol and diesel by Rs 3 per litre on Friday will have a direct impact on the wholesale market as well as the retail market. Such an increase has, in fact, been made after four years. The government claims that it has increased retail prices by a negligible amount compared to the international prices of crude oil, which compensates for only 10 percent of the daily losses of oil marketing companies. Despite this claim being true, the reality is that even an increase of Rs 3 is going to hurt the common consumer quite a bit. It would not be unnatural for them to express their displeasure over this. To avoid such displeasure, it is necessary that the Modi government shows more activity in its efforts to end the US-Iran war. The time for being limited to mere rhetoric in the name of realism has passed.
