Budget 2018: The Brent crude oil price is hovering over $68 per barrel, after briefly topping $70 mark in mid-January, while petrol price in India has breached Rs 80 per litre mark and diesel price is at all time ahead of the Union Budget 2018. The oil ministry has pitched for another excise duty cut to Finance Minister Arun Jaitley when he presents the Budget 2018 tomorrow to cushion the impact of rallying crude oil price.

In October last year, the government had announced Rs 2 per litre cut in petrol and diesel price. Since then, the Brent crude oil price has moved up $13 per barrel and fuel price by over Rs 3 per litre, completely reversing the impact of the incentive. Ahead of the Budget 2018, the Economic Survey warned the government of adverse impact of oil price, saying that persistently high oil prices pose risk to the current account deficit (CAD).

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The impact of every $10 per barrel rise in oil price leads to the reduction in 0.2-0.3 percentage points, and it must be factored in by Arun Jaitley in the Budget 2018. Not only current account deficit, rallying crude oil price will have an impact on inflation as well by 1.7 percentage points. As the country imports 82% of its total oil requirement and Brent crude oil makes up around 28% of total imports, the rise will lead to a higher CAD by $9-10 billion.

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Oil minister Dharmendra Pradhan had been long advocating for bringing fuel under the Goods and Services Tax (GST), but since the decisions related to GST is taken by the Council, it is unlikely for this demand to be fulfilled in the India Budget 2018. It is not unknown that the rallying crude oil price has ended the three-year-long low price windfall, which allowed the Narendra Modi government to hike excise duty on petrol by Rs 12 per litre and on diesel by Rs 13.77 per litre, before giving the Rs 2 per litre relaxation.

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Moreover, the Arun Jaitley may have to walk the tightrope this year to continue with the fiscal consolidation. Even as experts are saying that the last full Budget ahead of the 2019 General Elections is likely to be populist, they are also saying that the populism could tilt towards rural population, employment and agriculture.