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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com .)

Last fiscal, global crude oil prices rose 18% on average. Another 22% increase this fiscal is expected, taking the average price of the Indian basket to $70-72 a barrel. The first two months have seen prices average $74 a barrel — even hitting $80, the highest since November 2014 — fuelled by geopolitics.The rebound happened after nearly five years of decline. Low oil prices helped lower India’s current account deficit (CAD) to below 1% of GDP, and complemented GoI’s efforts in taming the fiscal deficit and inflation.So, time to panic on the twin fiscal and current account deficits and inflation? Not so fast. We can derive some comfort from two factors. One, most forecasters expect crude to soften in 2019 and beyond, led by easing demand conditions, a structural shift over time towards alternates such as electric vehicles, and continued increase in supplies from the US. So, this crude price spike could well be transitory, unless geopolitical tensions continue to play spoilsport.Second, the Indian economy is more resilient today to withstand an oil shock because of policy actions taken when prices were benign. Consequently, while a flare up in crude will hit CAD harder, the negative impact on fiscal deficit and inflation would be less intense than in the past.The fisc is bearing a much lower subsidy burden because of marketlinking of fuel prices . The consumer price index (CPI) assigns a weight of 2% to fuel oils. In contrast, CAD, already under pressure from a high non-oil trade deficit, will rise because rising oil will crank up India’s oil trade deficit immediately.Why would the fiscal be impacted less? In June 2010, the UPA government deregulated retail petrol prices and made it somewhat market-linked. Today, retail prices of both petrol and diesel are aligned to global prices. This has helped reduce GoI’s subsidy burden.The Pradhan Mantri Ujjwala Yojana (PMUY), which aims to steer rural households from kerosene consumption by providing free liquefied petroleum gas (LPG) connections, is another game-changer. This can bring down demand for kerosene and, thereby, its subsidy burden, which is about a third of the total fuel subsidy spend. Plus, the introduction of direct benefit transfer for LPG subsidy and gradual rationalisation have also alleviated some subsidy pain by reducing leakages.When global oil prices were declining, sharp hikes in excise duty on petrol and diesel bolstered GoI revenue and reined in the fiscal deficit. Now, it is not cutting excise when crude prices are rising. This asymmetry cushions the fisc.The shock to CPI inflation, too, may be less severe. While CPI assigns a lower weight to fuel prices, higher market linkages bring about larger first-round impact of rising prices on inflation. But recent studies suggest transmission of fuel prices to generalised inflation has weakened in recent years.In ‘Changing Dynamics of Inflation in India’ (Economic and Political Weekly, March 3, 2018), Ravindra Dholakia and Virinchi Kadiyala find inflation dynamics have structurally changed in the last five years. Characteristics such as persistence and pass-through of second-round effects of price shocks in fuel (and food) on overall inflation have significantly weakened since the adoption of the inflation-targeting regime in 2014.Amajor advantage has been anchoring inflation expectations. Hence, while monetary policy will stay vigilant of rising oil price, a policy rate action will most likely only be effected if the rise is perceived as being sustainable with pressures suggesting seepage into generalised inflation through stronger domestic demand.On CAD, however, the impact will remain significant. The direct influence of oil prices comes through the trade deficit. About 24% of India’s merchandise imports and 13% of exports are oil-related. So, the impact of rising oil prices is disproportionately higher on imports. The impact can amplify this time because the non-oil trade deficit is much higher.In fiscal 2012, when oil prices peaked, the non-oil trade deficit was 46% of total trade deficit. As the oil trade deficit widened, the overall trade deficit ballooned, taking CAD to 4.3% of GDP. This time, though, non-oil trade deficit is already at 55%. With the oil trade deficit also expanding, CAD could easily touch 2.5% of GDP in fiscal 2019. Typically, around 2.4-2.8% is said to be asustainable level of CAD.The surge in crude would threaten India’s macros only if the price continues to rise. Else, it will cause only a transitory dent and not derail India’s macro improvement.