Oil prices likely to wreak havoc on India’s deficit

Import bills may rise by $50 billion due to oil prices, weak rupee: Garg

New Delhi, May 18: Crude oil prices may rise further in the coming months, following which India’s current account deficit will be around 2.4 per cent in FY19, says a Goldman Sachs report.

According to the global financial services major, the rise in global crude prices poses risks to India’s current account deficit. “Our commodities team expects oil prices to continue to rise over the course of this summer, before moderating slightly at the end of the year. We recently increased our FY19 current account deficit(CAD) forecast to 2.4 per cent of GDP (from 2.1 per cent of GDP earlier),” Goldman Sachs said.

CAD widened to 2 per cent or $13.5 billion in the October-December quarter of 2017, up from 1.4 per cent, or $8 billion, in the corresponding period a year ago.

Globally, Brent broke through the $80 a barrel mark on Thursday for the first time since November 2014. “The recent spike in oil prices following the withdrawal of the US from the Iran nuclear deal poses additional upside risks to our headline inflation forecast. We estimate that a 10 per cent increase in crude oil prices leads headline inflation to rise by 10 basis points,” it noted.

Meanwhile, the rising global oil prices may push up India’s import bill by up to $50 billion, impacting the current account deficit, but would have little affect on growth, economic affairs secretary Subhash Chandra Garg said even as he remained non-committal on cutting excise duty to the ease the burden on consumers.

The government is watching the situation developing from oil prices hitting $80 a barrel — the highest since November 2014, and adequate steps will be taken, he told reporters here without elaborating.

Asked if the government would cut excise duty on petrol and diesel, he said he has nothing to say on that front. “Just watch.”

The BJP-led government had raised excise duty nine times — totalling `11.77 per litre on petrol and `13.47 on diesel — between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by `2 a litre. — PTI