Center has room to insulate consumers from 15% rise in crude prices: MOFSl


The center has the ability to insulate consumers from a roughly 15% rise in international crude oil prices, Motilal Oswal Financial Services said.

According to the brokerage’s estimates, the Center has the financial capacity to take the hit on its own income statement without breaching budget deficit targets.

“Given our revised crude oil price forecast of $80 per barrel for FY23 (from $70 per barrel earlier), if the Indian government decides to shoulder the entire burden, it would cost $12 to $13 billion (or 0.4% of GDP) next year,” the brokerage said in a report.

“Our recommendation is that if crude oil prices follow our projected path, it would be better for the Indian government to bear the burden of rising crude oil prices rather than passing it on to consumers.”

However, if crude oil prices turn out to be higher, consumers may be required to share the burden.

“Indeed, our calculations suggest that, similar to FY22, GoI will receive additional gross taxes totaling Rs 1.7 trillion in FY23. With LIC divestiture postponed until next year , even with a higher decentralization assumption, total GoI revenue could exceed BE by Rs 1.3 trillion in FY23E.”

“If the Indian government bears the entire burden of the $10 per barrel rise in crude oil prices totaling 0.4% of GDP, the total Indian government expenditure will increase by Rs 1 trillion to Rs 40.5 trillion. rupees in the 23E financial year against 39.5 trillion rupees.

Further, assuming an additional amount of Rs 0.5 trillion due to other expenditure, the total expenditure of Rs 41 trillion in FY23E implies a budget deficit of Rs 16.7 trillion the next year.

Global crude oil prices have been volatile lately, rising nearly 35-40% on fears of supply shortages due to the ongoing Russian-Ukrainian conflict.

In addition, the high cost of crude oil led state-owned oil marketing companies to slightly increase the retail prices of gasoline and diesel.

These prices were revised for the very first time on March 22 after a gap of more than 4 months.



(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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