With crude oil price touching 7-month high of $50 a barrel, Finance Minister Arun Jaitley has said India can handle the current level but higher rates will impact the economy and lead to inflationary pressure.
India, which depends on imports to meet 80 per cent of its oil needs, will have to spend Rs 9,126 crore ($1.36 billion) more for every dollar per barrel increase in crude oil prices while also seeing surge in inflation.
“Obviously higher crude price is not good news for India. But if it remains within a range, as it is at present, it is something that can be handled. If it goes beyond the range, then certainly it creates an adversity,” he told PTI.
Petrol prices have been hiked five times since March, totalling Rs 8.99 a litre while diesel rates have been raised by Rs 9.79 per litre as international oil prices climbed to $50 per barrel for the first time since October 2015.
Every rupee per litre increase in petrol price leads to 0.02 per cent rise in WPI inflation and by 0.07 per cent for the same amount of increase in diesel rates.
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Jaitley said external factors that impact economic growth rate, which at 7.6 per cent of 2015-16 has been hailed as the fastest among major economies, are oil and commodity prices.
“India being a net buyer has benefited from the regime in last over a year. And if the prices remain within the current range we have the ability to absorb although if there is any undue increase in prices its impact on both inflation and savings would be noticeable,” he said.
The government, he said, “will have to deal with the situation if it arises”.
When oil prices slumped in second half of 2014 and 2015, the government hiked excise duty on petrol and diesel nine times to mop up additional revenues that helped it meet its revenue and fiscal deficit targets. In all, it raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47.
Jaitley said the global environment has certainly not been helpful for growth of Indian economy.
“In many ways it has also been obstructive. I say obstructive because there is lot more volatility today, lot more unpredictability today and more than that I think the shrinkage on global trade has impacted on all economies and therefore it has impacted on us.”
In a helpful global environment for an economy to grow much faster, at 8-9 per cent, is reasonably possible but when the global environment is much adverse, to then maintain a 7.6 per cent growth rate is extremely critical, he said.
“Once the growth returns to the world, I think this 7.6 per cent, we have a reason to look forward to, to enhance,” he said.
The Finance Minister said a series of pro-growth policy initiatives as well as decisions on critical areas of spending have helped India maintain high level of growth.
On the way forward, he said: “I still have my hands full in terms of structural reforms that we require. I have always said that as far as reforms are concerned India will never have a finishing line, so you will have to go on and on with the changed situation.”
The government, Jaitley said, is looking at the direct tax reform to bring down the tax rate as also the indirect tax reform through the Goods and Services Tax (GST) regime to create single sales tax for the country.
“I am looking at changing the Companies Act – the Bill is before Parliament. I am looking at further investment in forestation through the CAMPA law – the bill is before Parliament.
“I am looking at further strengthening the banks in addition to Bankruptcy Code through securitisation and Debt Recovery Tribunal (DRT) law amendment. Now these are the legislative steps,” he said.
Administratively, he added, a lot more needs to be done in areas like social sector, education and healthcare.
“If you ask me what is the one of my top most priority in the field of education, you have serious challenge in the field of medical education. You have awfully low number of seats.
“So when the government is talking of reform process, I think it is a critical reform area how do we give a boost to the number of medical seats in India, increase the number of doctors in India so that healthcare standards itself improve,” he said.
Additionally, the three critical areas of future will be to continue the spend on infrastructure, rural India and social security, the Finance Minister said.
Infrastructure spending would involve building modern railways and trains, better air services, more electricity than what is required, bigger highways, toilets and more ports, he added.
Stating that rural India has been neglected the most, he said maximum resources should flow there.
“I think this whole series of steps we have taken now have to become bigger leaps as far as social security is concerned. Any developed economy in the world cannot be without a social security bracket.
“So far people have not even spoken about it in India and I think this is the first government which is taking steps in that direction and that will have to consolidate over the next three years,” Jaitley added.