HIGHER CRUDE PRICES COULD STRAIN GOVT’S BUDGET MATHS

NEWDELHI: The government could consider $65 a barrel as the crude oil price (Indian basket) for its calculations in Union Budget 2018, top officials in the finance ministry said. The number is likely to put pressure on the budget math.

The $65 number, which is around $10 higher than that used for calculations in Union Budget 2017, is on account of higher crude oil prices. As of 25 December, Brent crude was trading at $65.06 a barrel. The price of India’s crude oil import basket was $61.32 in November, up from $52.49 in March, according to the Petroleum Ministry’s Petroleum Planning and Analysis Cell.

As a net importer of crude oil, the rising price of oil does not bode well for India. It could hurt the current and fiscal deficits, increase costs for a variety of products and services, resulting in inflation, affect corporate profits, even turn the investment sentiment negative.

Crude prices are expected to increase given the Organization for Petroleum Exporting Countries (OPEC) and Russia extending an agreement to cut oil output till the end of 2018.

“Crude prices are re-balancing in 2018 given the OPEC production cut and a rebound in demand growth in Europe and US. For India, we are the happiest when crude prices hover around $45-$50, but those days are gone. Crude is expected to be range bound at $65 per barrel,” said Mriganka Jaipuriya, associate editorial director, Asia and Middle East, oil news and analysis, S&P Platts.

The downward spiral of crude since the end of 2014 reduced India’s oil import bill from $112 billion in 2014-15 to $64 billion in the last fiscal year.

This in turn helped the government trim its current account deficit, which includes the trade deficit (gap between exports and imports), net income deficit (difference between payments and receipts related to interest, dividend, and salaries paid to foreigners working in India), and direct transfers.