Q.3 How fluctuation in crude oil prices affects the Indian economy? Suggest the way forward to mitigate such impacts in the future.(10 Marks)

Mentor’s comment-
  • In the intro, mention the commodity price shock to the economy from the Ukraine crisis.
  • In the body mention supply shock to the economy from an increase in crude oil price that simultaneously impacts growth, inflation and the current account deficit (CAD). In the suggestions mention shift to EVs, increasing the strategic petroleum reserves, increasing use of solar, diversified sources
  • Conclude by mentioning that a persistent adverse supply shock is complicated and challenging to respond to, and the new equilibrium will inevitably need some combination of a weaker rupee, higher rates, and judicious fiscal management.
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