The petrol price in Delhi, which was above Rs 70 per litre fell sharply after excise duty cut of Rs 2 per litre in the beginning of October, but is once again inching closer to the mark as the Brent crude, the global benchmark for oil trade, hit yet another high on Tuesday at $64.22, highest since July 2015. Petrol and diesel prices have been hiked by 10-12 paise per litre in metros on Tuesday.
The price of Brend crude has gone up by 36% since then, and subsequently fuel prices in India. In four metros the prices of petrol were: Delhi Rs 69.80 per litre, Kolkata Rs 72.55, Mumbai Rs 76.90 and Chennai Rs 72.35, up 10-12 paise from Monday’s prices. Similarly, diesel prices have also been raised by 10-11 paise. In prices of diesel in four metros were: Delhi Rs 58.26 per litre, Kolkata Rs 60.92 Mumbai Rs 60.89 and Chennai Rs 61.36.
FE Online on Monday reported that petrol and diesel prices were going go up neutralising the cushioning of the excise duty cut on the back of rising international prices. The petrol prices (Delhi), after staying around Rs 68.30 per litre for some time, started picking up due to rise in international oil prices, especially Brent and have reached Rs 69.80 per litre on Tuesday. The revision in Brend crude prices is likely to push the fuel price in India further, unless there is some price cut by the government, states or oil companies.
Brend crude oil prices reached their highest since July 2015 buoyed by moves by Saudi Arabia’s crown prince to tighten his grip on power and rising tensions between the kingdom and Iran. Saudi Crown Prince Mohammed bin Salman moved to shore up his power base with the arrest of royals, ministers and investors, including billionaire Alwaleed bin Talal and the powerful head of the National Guard, Prince Miteb bin Abdullah., Reuters reported.
India imports 82% of its total oil requirement and Brent crude oil makes up around 28% of India’s total imports. The Indian crude oil basket is calculated on the average prices of Oman and Dubai sour crude price benchmark and the Brent sweet crude price benchmark. With Brent crude oil price going up, fuel price in India will go up as well. Since July, the Indian Basket Crude Oil price has surged drastically, forcing the central government and some state governments to cut taxes.
While a cut of Rs 2 per litre did provide temporary relief to common man from high fuel prices, the constantly rising international oil prices are going to take fuel prices in India up as well. Some states such as Gujarat, Madhya Pradesh, Himachal and Maharashtra and Union Territories have provided additional relief by cutting retail VAT on fuel, but it will soon get neutralised too.
Given the situation, will the government announce more cut in excise duty in coming days? Since April 2014, the government has hiked the excise duty on petrol by Rs 10 per litre and diesel by Rs 11.77 per litre. Data show that the government has the room to cut more, but it will lead to fiscal slippage, on which the Reserve Bank of India had expressed concern during its latest monetary committee meeting.
On October 4, the Reserve Bank of India kept the repo rate unchanged, expressing concern over rising prices of crude oil among others. “Although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil. The possibility of fiscal slippages may add to this momentum in the future,” the central bank had said.
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.
India is currently facing the challenge of reviving the economic growth which slumped to a three year low in the second quarter of the current fiscal to 5.7%. The central government is also in the middle of massive bank recapitalisation plan of Rs 2.11 lakh crore even as the fiscal deficit has touched 91.2% of the total budgetary allocation by September end.