Rise in oil prices behind inflation in India, IMF says tightening of monetary policy is needed


The country’s economy is expected to grow 8.2 percent in 2022-23, down 0.8 percentage points

The country’s economy is expected to grow 8.2 percent in 2022-23, down 0.8 percentage points

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

The country’s economy is estimated to grow by 8.2 percent in 2022-23, down 0.8 percentage points, said Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia and Pacific Department.

“While it’s still strong, it’s a significant downgrade. We really see the difficult policy compromise for policymakers who support global inflation control, which has already started to rise,” she told reporters at a news conference here.

“The reason why inflation has risen is really the impact of the war in Ukraine, where India is particularly dependent on oil and commodity imports,” she said.

In the near term, we think a fiscal bias towards commodities that supports vulnerable households and focuses on infrastructure investments is appropriate, the IMF official said in response to a question.

She recommended tightening monetary policy and measures to review structural weaknesses.

“Well-communicated monetary policy action is needed, but likely monetary tightening,” she added.

“In order to increase India’s growth potential, it is important to address the structural weaknesses of the Indian economy that are bottlenecks to sustained growth. These bottlenecks are in the labor market, the real estate market, better educational outcomes and also a higher proportion of women in the labor market,” the IMF official said.

“So overall, the potential is definitely there, but it will require policy action,” she said.

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