NEW DELHI: Given the increase in the price of crude oil in the international market, the diesel and petrol prices should have been higher by Rs 7-14, suggests a report by the State Bank of India’s (SBI) economic wing. The report also highlighted that the intensifying geopolitical tensions in Europe is going to cost India at least Rs 1 lakh crore this fiscal year.
“Based on the existing VAT structure and taking Brent crude price of $95 per barrel to $110 per barrel, diesel and petrol prices should have been higher by Rs 7-14,” reads the report. As the Russian president Vladimir Putin started military operations in Ukraine on Thursday, the Brent crude oil prices hit $105 per barrel for the first time since 2014.
However, it fell to $101 per barrel on Friday but it continues to pose a threat to India’s inflation and current account deficit. Experts believe that it will take around 18 months for the crude prices to come down as much as 67% from the highest level. The average price of Indian basket of crude has risen by 33.5% from $63.4 per barrel in April 2021 to $84.67 per barrel in January 2022.
“Every $10 per barrel increase in Brent crude price will lead to an increase in inflation by 20- 25 bps. If crude oil price rises to an average of $100 per barrel(or $90 per barrel) from the current average of $74 per barrel, inflation is likely to increase by 52-65 bps (32-40 bps),” reads the report by SBI. “And if we assume that the reduced excise duty continues in the next fiscal and assuming petrol and diesel consumption grow around 8-10% in FY23, then the revenue loss of the Government would be around Rs 95,000 crore to Rs 1 lakh crore for FY23,” said the report.
Another study done by ICRA suggests that if the government reinstates the excise duty on fuel to the pre-pandemic rates, the total revenue loss will be Rs 0.9 trillion in this fiscal. “In our assessment, a rollback in excise duties to pre-pandemic levels can prevent any major jump in pump prices, thereby softening the impact on the CPI inflation trajectory, albeit at a fiscal cost of Rs 0.9 trillion to the GoI,” said ICRA in its report.