Higher crude oil prices put Rs. One lakh crore will be hit

MUMBAI: The more than 20 per cent rise in crude oil prices in the last one month has led to fears that the Indian government's fiscal arithmetic for the next financial year could deteriorate. Russia's invasion of Ukraine pushed crude oil prices above ૧ 100 a barrel to ૫ 105 a barrel.

A report prepared by the Economic Branch of the State Bank of India (SBI) estimates that rising crude oil prices will hit the Government of India's treasury by Rs 1 trillion in the next financial year.

Despite the rise in global crude oil prices, the Indian government has maintained retail prices of petrol and diesel unchanged since November 2021. The government has refrained from announcing increase in fuel prices due to Assembly elections in five states. If the current rate of value added tax (VAT) and the price of Brent crude at થી 100 to ૦ 110 per barrel are taken into account, then the price of diesel and petrol should be Rs 5-12 higher than the current price.

If the government cuts excise duty on petroleum products to curb rising petrol and diesel prices, it could hit the exchequer by Rs 2,000 crore a month.

If the reduction in excise duty continues in the next financial year and petrol and diesel consumption increases by 8 to 10 per cent, the government could lose between Rs 2,000 crore and Rs 1 lakh crore (one trillion) in revenue in the next financial year, the report said.

However, when presenting the budget for the next financial year, the finance minister has kept the revenue estimates lower than expected, which may provide some relief against the above proposed reduction.

Crude oil prices, which averaged ૬૩ 2.50 a barrel in April 2021, have risen to ૬૭ 4.5 in January this year. Which represents an increase of 2.50%.