Recent economic data shows that the Indian economy has put the disruptions caused by the demonetisation of specified banknotes in November 2016 and the introduction of the Goods and Services Tax in July 2017 firmly behind it. The Index of Industrial Production shows that manufacturing is improving. The Wholesale Price Index and Consumer Price Index show that inflation is under control. The GDP growth for 2018/19 should be anywhere between 7.3 per cent and 7.6 per cent, according to different forecasts.
There are, of course, potential dangers, including a trade war triggered by US President Donald Trump. But a bigger danger could be the relentlessly rising crude prices. The BJP-led NDA government had been very lucky in its first three years as far as crude prices were concerned. It had taken charge when crude was still over $100 a barrel in mid-2014. But it started falling quite sharply and dropped below $30-a-barrel by early 2016. The dropping prices allowed the Modi government to raise excise duties on crude and shore up its finances, reduce its current account deficit and help tame inflation to an extent. But since 2017, crude prices have been inching up. In 2018, it rose further and has hit three-year highs so far - at almost $70 a barrel.
India imports almost all the oil it consumes. It has become the world's largest crude oil importer. Its oil demand is going up by 4-4.5 per cent each year. As the Economic Survey of 2018 points out, India has two underlying macroeconomic vulnerabilities - its fiscal and current accounts. And both tend to deteriorate when oil prices start rising.
Rising oil prices threaten India's current account deficit, its GDP growth, its fiscal stability and its inflation. There is no real shortage of oil but prices are rising because the OPEC countries and Russia are keeping production low to prevent oil prices from falling too low. And while rising shale oil production in the US is expected to help in cooling down oil prices, it is still some time away.
How can the government tackle problems created by rising oil prices and India's dependence on imported oil? The govern-ment is trying a number of steps - ranging from changing the energy mix to move to a higher usage of gas (which is cheaper and also a cleaner fuel than oil) to diversifying the areas it buys oil from to taking up equity in oilfields around the world and improving India's own production of oil and gas.
It will take some time for these different steps to show results, but the beginning has been made.