Crude Oil hits $100: How will it affect
India!
As of now, crude oil has gone up to $100
per barrel from February 24th, since 2014, to follow the Russian President’s
commands of launching a special military operation in Donbas of Ukraine.
These inflated rates have a great impact on
India, as India imports approximately 85% of the crude processed by the
domestic refiners.
These high prices can influence an increase
in the rates for different industries, make transport expensive, increase the
bill amounts from the imports and lead to devastation on current scenario.
The 2021-22 survey of Economy has alerted
the risk for imported expenses, from the current worldwide energy prices but
the 2022-23 budget and RBI’s Money Policy committee have a very different opinion
for the inflated crude oil prices, they thought of getting a barrel for $70 to
75 in the year.
The FOB rates of Indian basket of crude on
the 16th of February were around $94.68 per barrel.
Indian basket is a mixture of Dubai and
Oman, or sweet grade, and Brent dated or sour grade.
Diesel and Petrol prices have not changed
since the Centre had lessened the duty on those fuels
From 3rd November, 2021, moreover, the
state government had waived off the VAT when the Crude prices had fallen in
December to November levels, and then suddenly became expensive in January.
The FOB rates of Indian Basket for
importing crude had fallen to $73.30 per barrel in December from $80.64 in the
month of November and the again went up to $84.87 in the month of January.
INFLATIONARY PRESSURES
The higher the price, the expensive the
transportation as well as freight. These price inflations have an indirect
effect on the prices of vegetables to manufactured goods which is why it puts
upward pressure on the price index of consumer.
A higher cost in freight increases several
costs for manufacturer too. Different inputs used in a wide range of industries
come from crude, thus, they rise too.
Moreover, the cost of preparing power units
that use crude substitutes such as naphtha, petroleum, coke, furnace oil as
feedstock will be affected too.
As the prices come to rise, and the margins
are tweaked, companies continue to pass the inflated inputs to consumers. The
increases in price experienced by the makers tend to show in the wholesale
rates.
The transport sector is about to see the
operating price rise. Airline industry has already experienced 4 fortnightly
inflations in the aviation turbine fuel rates in the current year. Railways are
also about to experience the operating costs climb on sectors where trains will
be tugged by diesel run locomotives.
For the households, LPG rates may inflate.
The rates of non-subsidised cylinders as last changed in the month of September
in Delhi and the sale price was about rupees 900.
FATTER IMPORT BILL
About 85% of the crude oil is imported to
the country is processed. In the first nine months of this fiscal year, the
country imported crude worth $85.54 billion, rising 121.1 percent over the same
period previous year. Until the end of December, crude oil accounted for just
fewer than 20 percent of imports. Volume growth at 156.51 million metric tonnes
was small - about 9 percent.
As compared to pre-pandemic year 2019-20,
the import bill as 12% higher whereas the volume of imports was about 7% low.
For that year, the import value should rise to the levels of 2018-19 when crude
oil worth $114 billion came to country.
Indian oil production grew by 163 % in the
first nine months of the current financial year as a result of high global oil
prices. India exported petroleum products, mainly diesel, worth $46.3 billion
in the first nine months.
Oil products account for 15 percent of
India's export earnings in April-December 2021.
TRADE IMBALANCE
Rising crude imports have already pushed
the trade deficit higher. The commerce ministry estimates the merchandise trade
deficit for April-January at $159.87 billion, up from $75.87 billion for the
same time period last year and $141.21 billion for the same time period of
2011.
In the current year, crude oil imports
averaged $44.82 compared to $60.47 in the year before the pandemic. Import
prices have remained above 2019-20 levels almost all of this year.
The trade deficit would widen further if
crude prices remain high and imports continue to rise.
After recording a deficit of $9.6 billion
in the first half of the current fiscal year, India reported a current account
deficit of 0.2 percent of GDP or $3 billion.
In a commentary on trade data, chief
economist Aditi Nayar of rating agency ICRA wrote that the current account
deficit was forecast to widen to $26-29 billion in October-December 2021,
before easing to $15-17 billion in January-March 2022.
FISCAL DEFICIT WORRIES
In the current year, as well as in the year
to come, higher crude oil prices could negatively impact the deficit of the
Centre, especially if the finance ministry lowers the excise duty on petrol and
diesel to soften the blow for consumers.
The government could also be impacted if it
subsidises cooking fuels once again for poor households. Subsidies on LPG
cylinders have not been available since May 2020.
State governments may be required to drop
the value-added tax on the two fuels if the federal government reduces excise
duty. Any reduction in duties by the federal government or states could result
in lower tax revenues.