India has learnt to live with expensive oil. Can it last?

India has adapted to the rising costs of oil, but it remains uncertain whether this can continue indefinitely. Despite a robust global economic backdrop, growth has slowed due to the impact of expensive oil and disruptions to energy supply routes. However, India's diverse sources of crude oil and its ability to secure alternative supplies have mitigated the impact of higher input costs and global uncertainty.

The Reserve Bank of India's substantial foreign reserves have bolstered the economy's resilience, providing a safety net against forex volatility, commodity price shocks, and fluctuations in global risk sentiment. This has granted policymakers greater flexibility in their decision-making compared to previous cycles.

Looking ahead, the economy is likely to face increased uncertainty, with a wider range of policy options available to address potential challenges. A key area of focus will be managing foreign currency non-resident (FCNR) deposits that are set to mature in the next three to five years. Part of the foreign reserve stock may be allocated to address these liabilities, helping to prevent a sharp increase in dollar demand and potential pressure on the forex market.

In the near term, managing liquidity, gradually reducing the significant forwards book, and supporting the domestic currency will be top priorities. Additionally, the long-end yields will continue to be influenced by the global trend of rising interest rates. As the country navigates this period of heightened uncertainty, the focus will shift to assessing how the economy can sustain its growth trajectory amidst the changing economic landscape.