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Oil import bill for FY19 seen rising 42%; falling rupee cause for concern

The crude oil import bill for India is expected to increase by $37 billion to $125 billion during the current financial year (2018-19, or FY19) — a 42 per cent spike over the 2017-18 (FY18) bill of $88 billion, according to the latest estimates released by the Petroleum Planning and Analysis Cell (PPAC)

Rising crude oil prices and a weak rupee are the main reasons for this rise.

The benchmark Indian crude oil basket is now estimated to average $77.88 a barrel for FY19, compared to the government’s earlier estimate of $65 a barrel for the year and $56.39 for FY18.

In rupee terms, the estimated increase in the import bill will be Rs 5.66 trillion. Last year, it was Rs 8.81 trillion.

With global crude oil prices rising over the past two months, retail prices of petrol, diesel and liquefied petroleum gas have also scaled new highs, forcing the government to cut excise duty on October 4.

It is said for every rupee per litre cut in excise duty on petrol and diesel, the Centre will have to forego around Rs 140 billion in revenue and the Government will not be willing to have its developmental expenditure cut as it is to face elections soon.

“The current situation will have an impact on our trade deficit and fiscal deficit, and our foreign exchange (forex) reserves will continue to deplete” said Deepak Mahurkar, partner and leader (oil and gas), PwC India.

For every $1 increase in crude oil prices, the impact on the current account deficit (CAD) is likely to be $1 billion. Based on estimates, the CAD is expected to widen to $72-77 billion (2.8 per cent of gross domestic product or GDP) in FY19, from $48.7 billion in 2017-18 (1.9 per cent of GDP).

India’s forex reserves saw its biggest single-week fall in seven years, by $5.14 billion to $394.46 billion in the week ended October 12.

This will be the first time that the crude oil import bill will cross the $100-billion mark in three years.

It was $140 billion for consecutive three years starting 2011-12.

The Prime Minister Narendra Modi-led government would also be worried because of the increase in consumption of crude between April and September by 5.8 per cent to 113 million tonnes (mt) this year. For the same period last year, it was 106.8 mt.

In FY19, the total consumption is likely to be 228.6 mt, up from 220 mt in FY18.

On Monday, the price of Brent crude was $79.89 a barrel at one point, while the Indian basket price was $78.81 a barrel.

Every $1 a barrel increase in crude oil may transform to an increase of 63 paise per litre of petrol and diesel, while a depreciation of Rs 1 per dollar may require a spike of 50 paise on both fuels. According to a Bloomberg survey, the rupee is likely to resume its losses, touching 76.50 per dollar.

 

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