CEA Krishnamurthy Subramanian Exclusive: India's recovery risk from energy crisis

Brace yourself for high fuel prices over the next year says India’s 17th Chief Economic Advisor in an exclusive chat on Biz Buzz as he highlights the need for revenue to fund the govt’s capex plans. Here is an excerpt of the candid conversation with KV Subramanian.

Vikram Chandra, Editorji: Let us focus on risks, with Covid risks receding is the global energy concerns the biggest risk you see right now?

KV Subramanian, CEA: While we are still not out of the pandemic , but from October onwards you will see a big ramp-up in the second doses. Two-dose protection has dramatically bought down severity of the disease. The likelihood of a devastating third wave is not very high but I am a consumer of this research so I will caution and say epidemiologists are the best to answer this.

Turning to global energy concerns. Unlike other countries , India has rightly focused on supply side concerns while everyone focused on demand side. We recognised early on that supply side issues in India are far harder to deal with and acted on it. Some of the power sector reforms, mining sector changes will help us enhance supply. What we are seeing is supply side friction across globally economies but India planned for it and recognised the supply side pressures early. But the next couple of months we will have to match supply and demand very carefully after which the measures we have taken will start to kick in. We need to calibrate the next few months very carefully.

Vikram Chandra, Editorji: Lets talk a little bit more about the energy crisis from coal to oil and the impact it has having on consumers. What is the governments thought process right now on how to ease this pressure ?

KV Subramanian, CEA: This year and next year expect crude oil prices to remain high, given the OECD estimates it is clear that global demand will remain quiet high keeping prices high. Do not foresee oil prices easing over the next 18-24 months, see crude above the $70 mark sustaining. Price in petrol pumps is of concern because of overall inflation. Currently food inflation is the largest part of the basket and that is easing keeping the basket under check. The govt is talking about what can be done about high petrol prices. But do keep in mind that the capital expenditure has to come from revenues . And that capex expenditure though not as obvious as oil prices and it’s direct impact also affect the common person. Capex spends have a much longer and salutory impact that one must keep in mind.