Brent crude oil price has hit a two-year high at $65.29 per barrel on Tuesday; the petrol price in New Delhi was Rs 69.09 per litre. Last time, in May 2015, when Brent crude oil was $65.39, the petrol price in New Delhi on May 1, 2015, was Rs 63.16 per litre, which then jumped to Rs 66.29 per litre. It was still less than what you are paying today for the same crude oil price. Notably, the crude oil price is going to rise in future as well, which may pull up petrol price as well.
The biggest reason seems to be the excise duty that is being levied on the petrol price. In May 2015, the excise duty was Rs 15.4 per litre and now it is Rs 19.48 per litre. The central government did cut the excise duty in October to cushion the common man from rising oil prices by Rs 2 per litre but it still was Rs 4 per litre higher than May 2015.
Since April 2014, the government has hiked the excise duty on petrol by Rs 10 per litre. Data show that the government has the room to cut more, but it will lead to fiscal slippage. The Centre’s fiscal deficit during the first seven months (April-October) of the current fiscal was Rs 5.25 lakh crore, or 96.1% of the budgeted target for the current fiscal year that ends in March 2018.
The government aims to restrict the deficit to 3.2% of GDP in the current fiscal as against 3.5% in 2016-17. In absolute terms, 3.2% deficit for the current fiscal works out to nearly Rs 5.47 crore. Besides, higher excise duty, inflation and price hike by oil companies also play a role in deciding retail price.
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.