After 3-year lull, rising crude oil prices now a headache for Modi government amid fiscal concerns

After 3-year lull, rising crude oil prices now a headache for Modi government amid fiscal concerns

India News

The Brent Crude Oil price was down 2 cents but still at $66.55 per barrel on Wednesday, seen inching towards $70 in coming days. On Tuesday, the crude oil price rose to its highest since 2014 to $67.12 a barrel. The constant rise in crude oil price is becoming a cause of concern for the government. With rising oil prices, fiscal slippage is not the only concern but it is also going to lead to higher inflation in future.As the price of crude oil rose, the petrol price hit Rs 69.97 per litre and diesel price hit Rs 59.82 per litre. Just talking about diesel, the prices have been consistently over Rs 59 per litre in the last ten days, at an all-time high.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.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.This continuous rise in crude oil prices is putting an end to the three-year-long low prices windfall, which allowed the 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 will put India in a vulnerable position.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, which could lead to “modest fiscal slippage”.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.