The recent rally in global crude oil prices has
led to India’s oil import bills welling
49 per cent to $115 billion in May as compared to $76 billion recorded in the
corresponding month a year ago. This has pushed the country’s merchandise trade
deficit to $14.62 billion during the month.
Commerce ministry data shows global
benchmark Brent crude prices have increased by more than 50 per cent in May
2018 year-on-year. Crude prices have been on an upward trajectory since 2017 on
the back of production cuts initiated by Organization of Petroleum Exporting
Countries (OPEC), Russia and non-member allies. Also, significant drop in
Venezuelan oil production and the recent economic sanctions on Iran by the US
pushed oil prices to $80 per barrel last month.
The cascading effect of surging crude
prices also propped up domestic fuel prices in India which reached record highs
in May. Speaking on the issue of high crude oilprices,
Oil minister Dharmendra Pradhan on Monday said India will raise the issue of high crude
oil prices at the upcoming OPEC meet in Vienna on 22 June. Pradhan had last
week met ambassadors of OPEC in New Delhi and voiced his concerns over high
crude prices and its negative impact on the India consumers.
India’s cumulative oil import bill
including petroleum products increased by 46 per cent to $219 billion in the
first two month of the present financial year, raising concerns over an
expected shortfall in budgeted petroleum subsidy and widening Current Account
The country’s CAD is expected to reach 2.5 per
cent of GDP in the current financial year from an estimated 1.9 per cent in the
last fiscal, SBI Capital Markets and Emkay Global Financial Services said in
separate reports. Also, sector analysts expect the surge in crude oil prices to
inflate the country’s fuel subsidy bill to Rs 53,000 crore in the current
The government has budgeted for
petroleum subsidy of Rs 24,933 crore for the current financial year, a mere 2
per cent increase over the Revised Estimate of Rs 24,460 crore allocated last
fiscal. Also, as oil prices increase, upstream firms Oil and Natural Gas
Corporation (ONGC) and OIL India (OIL) face increasing risk of government
asking them to share the fuel subsidy burden.
"Because of the government's widening
fiscal deficit, ONGC and OIL could be asked to bear part of the Indian
government's fuel subsidy for oil, if prices stay above $60 per barrel for the
fiscal year ending March 2019," said Vikas Halan, Senior Vice President at
Moody’s said in a report.
The report estimates total fuel subsidy to range
between 34,000 crore and Rs 53,000 crore in 2018-19, the highest since fiscal
year 2014-15, assuming Brent crude oil prices average $60-$80 per barrel.
Rating agency ICRA had also recently said petroleum subsidy allocation of Rs
21,700 crore for 2018-19 would materially fall short by Rs 11,000-12,000 crore.