Reserve Bank of India (RBI) Governor Sanjay Malhotra has hinted that petrol and diesel prices in India could rise if tensions in the Middle East continue for a longer period.
Speaking at a conference in Switzerland hosted by the Swiss National Bank and the International Monetary Fund (IMF), Malhotra said the government may eventually have to pass on rising crude oil costs to consumers.
At present, the government and state-run fuel companies are absorbing much of the increase in global oil prices to protect consumers from a sudden fuel price shock.
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Why Fuel Prices Could Increase
The ongoing conflict in the Middle East has pushed up crude oil prices globally and raised concerns about supply disruptions.
One of the biggest risks is the Strait of Hormuz — a critical shipping route through which a large portion of the world’s oil supply passes.
According to the RBI Governor, if the situation continues for a long time, it may become difficult for the government to continue absorbing the extra cost.
Currently:
Excise duties on fuel have already been reduced
Oil marketing companies are taking part of the burden
Retail fuel prices have remained relatively stable
But rising crude prices could eventually force an increase in petrol and diesel rates.
Government Also Tightens Gold Imports
The government has also taken steps to protect India’s foreign exchange reserves.
Prime Minister Narendra Modi recently urged citizens to:
Reduce petrol and diesel consumption
Avoid unnecessary gold purchases
Soon after, the government increased import duty on:
Gold and silver from 6% to 15%
Platinum from 6.4% to 15.4%
The move is aimed at reducing imports and controlling pressure on the country’s foreign exchange reserves.
Inflation Risks Are Increasing
India’s retail inflation rose slightly to 3.48% in April from 3.40% in March.
The increase was smaller than expected mainly because the government absorbed higher oil costs instead of immediately passing them on to consumers.
However, experts believe inflation risks are still rising due to:
Higher energy prices
Supply chain disruptions
Global geopolitical tensions
Brokerage firm Crisil expects inflation to rise further in FY27 because of the continuing West Asia conflict.
RBI Says It Will Take Decisions Carefully
The RBI Governor said the central bank is now following a more “data-dependent” and “meeting-by-meeting” approach.
This means the RBI will closely monitor:
Inflation trends
Oil prices
Economic growth
Global developments
Malhotra said the RBI may ignore temporary shocks, but if inflation pressure becomes long-lasting, the central bank may need to take action.
The RBI’s next monetary policy meeting is scheduled for June 5.
In its last policy meeting held in April, the RBI kept the repo rate unchanged at 5.25%.
No Immediate Fuel Price Hike Yet
Despite the warning from the RBI Governor, the government has said there is no immediate plan to increase petrol and diesel prices.
Oil Minister Hardeep Singh Puri recently stated that India currently has:
Around 60 days of crude oil and LNG reserves
Nearly 45 days of LPG stock
He assured that there is “absolutely no cause for anxiety” at the moment.
Still, if global oil prices remain high for an extended period, fuel prices in India may eventually come under pressure.