NEW DELHI: Amid growing expectations of a hike in petrol and diesel prices due to rising global crude oil costs, the International Monetary Fund (IMF) has advised India to gradually pass on the burden of expensive oil to consumers instead of relying heavily on subsidies and tax cuts.
Speaking at an event organised by the National Council of Applied Economic Research (NCAER), IMF Asia-Pacific Director Krishna Srinivasan said governments eventually need to allow market-linked fuel pricing to function effectively, especially during periods of supply disruptions and energy uncertainty.
His remarks come at a time when concerns over disruptions in the Strait of Hormuz have triggered fears of a prolonged global oil supply shock, pushing crude prices upward and increasing pressure on importing nations such as India.
IMF Warns Against Extended Fiscal Support
Srinivasan acknowledged that the Indian government has already taken measures to soften the impact of rising energy costs by reducing excise duties on fuel and extending fertiliser subsidies. However, he cautioned that such fiscal interventions cannot continue indefinitely.
According to him, India still has some room to absorb the external energy shock, but the available fiscal space is limited. He argued that maintaining artificially low fuel prices for a prolonged period could distort demand patterns at a time when global supply constraints remain severe.
The IMF official stated that allowing retail fuel prices to reflect international crude trends would encourage more efficient energy consumption and reduce excessive demand pressures.
At the same time, he recommended that the government continue offering targeted financial support for economically weaker and vulnerable sections of society to shield them from inflationary stress.
RBI Highlights India’s Strong Fiscal Position
The IMF’s assessment on fiscal limitations was challenged by Poonam Gupta, who defended India’s macroeconomic strength and fiscal management.
Gupta pointed out that India remains in a stronger position compared to several advanced and emerging economies. Referring to IMF projections, she noted that India’s gross debt-to-GDP ratio is expected to decline steadily from 83.4 per cent in 2026 to 77.7 per cent by 2031.
In contrast, debt levels across many advanced economies, middle-income nations and emerging markets are projected to rise over the same period.
She credited prudent fiscal policies, ongoing fiscal consolidation measures and strong economic growth for improving India’s financial outlook.
Indian Economy Remains Resilient
Gupta also underlined the resilience of the Indian economy despite global uncertainty, geopolitical tensions and energy market volatility.
She observed that India has continued to maintain stable growth momentum along with relatively controlled inflation levels. Highlighting recent IMF revisions, Gupta said the institution had initially projected lower growth figures for India before upgrading its outlook later.
According to her, the revised forecasts reflect confidence in India’s economic fundamentals and its ability to withstand external shocks.
Inflation Framework May Be Reviewed
On the subject of monetary policy, Gupta suggested that India could consider revisiting its inflation-targeting framework over the coming years if macroeconomic stability remains intact.
At present, the country follows an inflation target of 4 per cent with a tolerance band of 2 percentage points on either side.
Gupta said a narrower inflation band and potentially lower inflation target could be explored in the future if economic growth remains strong and price stability continues consistently over the next five years.
Structural Reforms Strengthening Stability
The RBI deputy governor further stated that India’s financial sector stability and macroeconomic discipline are expected to remain durable due to continued structural reforms.
She emphasised that reforms create stronger economic buffers, enabling countries to respond more effectively during future global crises and financial disruptions.
The debate between the IMF and RBI officials reflects the broader challenge facing policymakers — balancing fiscal prudence, inflation management and consumer protection amid rising global energy prices and uncertain geopolitical conditions.