Crude oil poses a key risk to financial stability: Finance Minister

‘Keeping an eye on volatility in markets, but no plans to defer LIC IPO’

February 22, 2022 11:30 pm | Updated 11:30 pm IST - NEW DELHI

It is for oil marketing companies to decide if
they need to raise prices, says the FM

It is for oil marketing companies to decide if they need to raise prices, says the FM

The government and the financial sector regulators are keeping close tabs on the evolving Russia-Ukraine situation, high crude oil prices and the extreme volatility in financial markets, Finance Minister Nirmala Sitharaman said on Tuesday, ruling out any extraordinary or special measures to cope with the implications of these headwinds.

Ms. Sitharaman said she is studying the facts of the governance fiasco at the National Stock Exchange (NSE) to assess whether adequate regulatory action was taken by the stock market regulator in the case. She was unfazed about the volatility in equity markets affecting the prospects for the listing of the Life Insurance Corporation of India (LIC) shares before the end of the current financial year in March.

India was hoping for a diplomatic resolution of the Ukraine crisis and the External Affairs Ministry was in touch with all countries in the region so that Indian trade was not affected, Ms. Sitharaman said after steering the 25th meeting of the Financial Stability and Development Council in Mumbai with the chiefs of financial sector regulators overseeing banking, capital markets, insurance and pensions.

Runaway crude oil prices were identified as one of the major challenges for India’s financial stability by the Council, which also deliberated extensively on “the extreme volatility’ in markets, ‘headwinds’ from the tightening of monetary policy by the U.S. Federal Reserve and other central banks and the “worrisome international situation” in Ukraine, she indicated.

“It is very difficult to say on crude prices, [but] it is obviously an important consideration… It’s not just the rise in global prices that is a problem, but there’s a supply challenge as well,” she pointed out.

On the prospects for local retail fuel price increases, which are expected to rise in tandem with global prices after the ongoing Assembly polls conclude in March, Ms. Sitharaman said it was a decision for oil marketing companies to make.

“But about why oil marketing companies, who actually play at a price… meaning they buy at some cost, they use a 15-day average based on which they put out a pump-level price; what the OMCs will have to do, why they have not done it for the last 7 days, 17 days, 27 days, I cannot answer,” she asserted.

Asked when the government would look at paring excise duties on fuel products, Ms. Sitharaman said: “I would like to remind you that a day before Deepavali, PM himself got prices lowered by ₹5 and ₹10 per litre on diesel and petrol, responding to public demand. Many States, I am very grateful, followed suit and the burden on the consumer was brought down. When it comes to that stage [where the government has to decide on taxes] it will come out publicly.”

Emphasising that the volatility in the financial markets was due to triggers from overseas developments such as the Ukraine crisis, Ms. Sitharaman said the government was discussing the implications and “pressures we may have to face due to what is happening there”. “We are keeping a watch and moving forwards.”

“On whether the market condition is conducive for LIC [listing], if it’s good for LIC, it is good for everybody else. If there are headwinds for LIC, it is headwinds for the rest as well. I can see there’s a lot of buzz and interest in the market now that the draft red herring prospectus (DRHP) is out,” she said.

Dismissing queries on whether the listing process could spill over into the next financial year, the Minister said: “We will be going ahead with it... the DRHP is not issued two years in advance.”

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