The global crude market continues to harden, threatening to complicate fiscal challenges for the Modi government, which has been a beneficiary of benign oil price so far.
India meets over 80% of its crude requirement through import and hence vulnerable to oil price shock.
The government is staring at a 20% increase in its oil import bill in 2018-19. This has implications for the government’s fisc besides the current account deficit (CAD).
Taxes currently make up half the retail price of auto fuels. Finance Minister Arun Jaitley hiked excise duty on petrol and diesel nine times in 2014-15 and 2015-16.
Pressure may soon mount on the government to roll back excise duty on auto fuels. Since petrol, diesel prices are already deregulated, the government cannot ask state-owned oil marketing companies (OMCs) -- IOC, BPCL and HPCL – to hold off on hiking price beyond a certain level. The reason is, the government cannot compensate OMCs for any under-recovery on retail sale of auto fuels as prices are already deregulated.
So, the government will have to either roll back excise duty on petrol and diesel or provide the subsidy to fuel consumers from the budget. The government can make up for the revenue shortfall with the higher mobilisation of resources via disinvestment.
However, selling the family silver to meet fiscal deficit cannot be a long-term cushion against potential oil price shock
The government would be well advised to intensify its focus on stepping up the pace of exploration. It can do so by sweetening incentives to investors.
Posted By : Admin
Posted Date : 05-10-2018