Rise in global crude oil prices could push up India’s yearly oil import bill by about $25-50 billion, Department of Economic Affairs Secretary Subhash Chandra Garg said on Friday. Even as international oil price crossed $80 a barrel on Thursday, the secretary did not specify the price level beyond which the government could reduce excise duties to provide a relief to the consumers. In the past one year, global oil prices have surged by over 50 per cent, hitting the highest level since 2014. “Any increase in oil prices definitely has lot of impact on our economy. Last year, we imported (oil) of about $110 billion, we also export oil, roughly about $35-40 billion oil products we exported. So, the net impact of oil was about $70 billion last year. If the prices go up obviously this will have impact but under different scenarios we see the impact ranging from roughly about $25 billion to maximum $50 billion. Basically it is the oil which impacts the current account deficit, so the impact on oil might influence the CAD,” he said. With India importing over 80 per cent of its crude oil requirements, any rise in global prices sets the tone for domestic prices, especially since oil marketing companies now set prices for petrol and diesel on a daily basis. A combination of factors including rising oil prices, depreciating rupee and rising yields of US Treasury have led to the foreign portfolio investors or FPIs pulling out over Rs 32,000 crore from the Indian equities and debt markets in the last six weeks. Garg said that unwinding of the quantitative easing in the US and increase in the yields of US government securities has altered the investment scenario for foreign portfolio investors in India. There has been some pull out by the FPIs from bonds and equities but the “outflows are not alarming” and they are manageable, he said. When asked whether rising oil prices, which can lead to higher domestic inflation, prompt the Reserve Bank of India to increase interest rates, Garg said that call will be taken by the Monetary Policy Committee, which will meet early next month. “MPC will take a view on this as the time comes, but I would like to again emphasise the level of outflow in last one and a half months has been to the order of $4-5 billion. It is not extremely excessive,” he said. He said the rise in oil prices will impact the country’s trade and current account deficit, but it is unlikely to alter fiscal deficit as well as inflation trajectory. “Last year our trade deficit widened. We reached to the level of $160 billion last year. It was smaller a year ago: $40-50 billion. If the prices go up as I said, the impact would be under different scenario. More or less the trade deficit will be equal to the oil impact,” he said. When asked whether rising oil prices hit the government’s budget calculations, the secretary said: “The prices might impact if you adjust the excise duty. Today we don’t have direct subsidy. So if at some level, if that level reaches, the government decides to tweak it, then it might have some impact.” Last October, the Centre reduced the basic excise duty on petrol and diesel by Rs 2 per litre. It was the first time the NDA government reduced excise duty on petrol and diesel after having raised it 9 times since November 2014. The Centre’s estimated full year loss from this reduction was as much as Rs 26,000 crore. On the impact on rising prices on India’s macro-economic stability, Garg said there is no direct link between oil prices and level of growth. Economies can grow at high rates even when oil prices are rising. He also said the currency situation in the country is completely normal now and there has been a net deposit of Rs 4,000 crore in the last four days.
