Persistently high oil prices remain a key risk for inflation, India’s current account, the fiscal position and growth, said Chief Economic Adviser Arvind Subramanian’s Economic Survey 2018. The assessment report, tabled in Parliament on Monday, makes multiple mentions of how oil prices could affect India’s economy and the need to monitor it.

Besides the effects of the “one-off policy actions” of demonetisation and the Goods and Services Tax, Subramanian factored in high oil prices as one of the reasons India’s economy “decoupled” from the world economy. Oil prices, the chief economic adviser said, were about 16% higher in dollar terms in the first three quarters of 2017-’18 than in the previous year.

“It is estimated that a $10 per barrel increase in the price of oil reduces growth by 0.2 to 0.3 percentage points, increases WPI inflation by about 1.7 percentage points and worsens the current account deficit by about $9-10 billion dollars,” the Economic Survey explained.

Source: Economic Survey 2018

Moreover, “the recent upswing in inflation stems from rising global oil prices”, the Economic Survey said. It also warned that “persistently high oil prices” was one of the “nascent threats to macroeconomic stability”, and that India will “regain its status as the fastest growing major economy” only if it manages to stave off the risk.

The Economic Survey 2018 said the Indian economy is likely to grow at 6.75% in 2017-’18, and accelerate to 7% to 7.5% in 2018-’19. The figure for 2017-’18 is at the lower end of the projection the government made in the Economic Survey last year, when it said the Gross Domestic Product was likely to rise 6.75% to 7.5%.

Subramanian’s assessment report this year also warned that climate change could reduce agricultural incomes by up to 25% and emphasised that efforts towards gender equality were as important as those made towards improving India’s Ease of Doing Business ranking.