The Brent Crude Oil price was down 23 cents but still at $68.07 per barrel on Wednesday, seen inching towards $70 in coming days. Analysts are pegging that it will not take crude oil price to touch $70 per barrel.
Budget 2018: The Brent Crude Oil price was down 23 cents but still at $68.07 per barrel on Wednesday, seen inching towards $70 in coming days. Arun Thukral, MD & CEO, Axis Securities has said that among many other factors, the crude price could be a trigger too in the Budget 2018. On Thursday, the crude oil price rose to its highest since 2014 to $68.27 a barrel. The constant rise in crude oil price is becoming a cause of concern for the government, even acknowledged by Finance Minister in Rajya Sabha. He said that rising oil prices was one of the reasons behind “marginal” fiscal slippage.
This continuous rise in crude oil prices is putting an end to the three-year-long low price windfall, which allowed the Narendra Modi government to hike excise duty by Rs 10 on petrol per litre and Rs 12 on diesel. With low GST collections in November and December and fiscal deficit already breaching the 3.2% target, the rise in oil prices puts India in a vulnerable position, especially when the Union Budget for the fiscal year 2018-2019 is less than a month away.
As the price of crude oil rose, the petrol price in Delhi hit Rs 69.99 per litre and diesel price hit Rs 59.94 per litre. Just talking about diesel, the prices have been consistently over Rs 59 per litre in the last two weeks, at an all-time high.
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 imports 82% of its total oil requirement and Brent crude oil makes up around 28% of India’s total imports.
Recently, a government official told ET Now that rising crude oil price could also be one of the reasons for the fiscal slippage. The official added that the rise in crude oil prices was eliminating the benefit given to consumers in October by cutting excise duty and the VAT in some states.
Meanwhile, the government is already struggling on many fronts regarding the fiscal deficit. The government last week announced to borrow additional Rs 50,000 crore via gilts, which is double the amount that was estimated by the market.
The government on Tuesday also announced to replace the 8% Savings Bonds Scheme with a 7.75% bond. In wake of lower tax collections and reduced RBI dividend, the government is eyeing to extend its disinvestment target to Rs 1 lakh crore as against the FY18 budget target of Rs 72,500 crore. However, experts say that the record foreign exchange reserves, for the next months, would be able to help India against the rise in crude oil prices.
The oil price is rising supported by unrest in Iran raising concern about risks to supplies, cold weather in the United States boosting demand and OPEC-led output cuts. Analysts are pegging that it will not take crude oil price to touch $70 per barrel as this amount is required for Saudi Arabia to break-even to achieve zero deficit in 2017, according to International Monetary Fund.