Budget 2018: After three and a half years, the petrol price in Mumbai breached the Rs 80 per litre mark on Monday on back of higher crude oil prices, completely reversing the impact of excise duty cut announced in October when it was just 1 paisa short of hitting Rs 80. Now as the Budget 2018 is just around the corner, the oil ministry is pushing for a cut in excise duty on petrol and diesel to cushion the impact, Reuters reported quoting two unidentified officials.
The Union Budget 2018 is the last full Budget of the present government and ahead of the impending General Election in 2019 and as many as eight state elections this year. In his fifth Budget, Finance Minister Arun Jaitley already has a lot on his plate — from the previous commitment of corporate tax rate cut to yearly expectations from rural population and farmers — and at a time when the government revenue is worrying and the fiscal deficit target is feared breached.
While the oil minister Dharmendra Pradhan has long been advocating for bringing fuel prices under the ambit of the Goods and Services Tax, if an excise duty cut is announced in the Budget 2018, it is likely to give an immediate relief to a vast consumer base. “We can only recommend. It is up to the finance ministry to take a decision,” a senior oil ministry official told Reuters.
The continuous rise in crude oil prices is putting an end to the three-year-long low oil price windfall, which allowed the government to hike excise duty by Rs 12 on petrol per litre and Rs 13.77 on diesel since April 2014.
The Union Budget 2018: Where we are
Arun Jaitley will present the India Budget 2018 in a stressful time. The GST disruptions are yet to fade away completely and the government is still struggling to ensure higher tax compliance and revenue. Moreover, the GDP growth, by government’s own projection, is going to be a four year low of 6.5% in the fiscal year 2018 as GST disruptions and a bad agriculture year led to a bleeding economy.
With low GST collections in November and December, and the fiscal deficit already breaching the 3.2% target in the first seven months, the continuous rise in oil prices is putting India in a vulnerable position. The government earlier announced to borrow additional Rs 50,000 crore via gilts, which, however, was later cut to Rs 20,000 crore. It also announced to replace the 8% Savings Bonds Scheme with a 7.75% bond.
Watch Video: Budget 2018: Why There’s A Good Case For Bringing Petrol Under GST
In fact, the government had to turn to the RBI for an additional dividend of Rs 13,000 crore. The government is also in the middle of a massive Rs 2.11 lakh crore bank recapitalisation plan, of which Rs 76,000 crore will be from the Budgetary allocation.
In the last three months, the Brent crude oil price has gone up by $18 per barrel, while petrol and diesel prices have gone up by over Rs 3 per litre. Morgan Stanley has said that the fiscal deficit is likely to increase to 3.5% of the GDP in the fiscal year 2018-19.
According to Nomura, every $10 per barrel rise in the price will worsen India’s fiscal balance by 0.1% and current account balance by 0.4 % of GDP. “For a net oil importer like India, a sustained rise in crude oil price would have adverse macroeconomic implications,” it said in a report.
Moreover, it is further going to push up the inflation, which has already breached Reserve Bank of India’s 4% target. With rising oil prices, the repo rate cut by the central bank also looks unlikely, further impacting country’s investments and production cycle. However, experts say that record foreign exchange reserves at $410 billion would be able to help India against the rise in crude oil prices, at least for next 9 months.