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Rtings(The
Total Investment & Insurance Solutions)
India
Ratings and Research has estimated that the combination of boiling crude and
weak rupee may widen the current account deficit (CAD) by up to $31.20 billion.
Similarly, a research report by YES Bank estimated CAD to go up to 2.6 per cent
of GDP (gross domestic product).
Interestingly,
both the reports have different estimate of average oil prices. India Ratings’
estimate is $70 but YES Bank’s estimate is $75. Accordingly, Indian basket of
International crude prices could be in the range of $68 to $73.
According
to India Ratings, “If crude prices remain elevated during FY19 (2018-19), it
will result in the widening of trade deficit/current account deficit by $22.23
billion to $31.20 billion. In Ind-Ra’s base case scenario, Brent crude averaging
$70/bbl in FY19 will translate into Indian crude oil basket averaging
$68.00/bbl. If the rupee averages 66.6/USD in FY19, net addition to current
account deficit would be $22.23 billion. However, if the Indian crude oil
basket averages $72.86/bbl (this means Brent crude averaging $75/bbl) and rupee
averages 68.0/USD, net addition to current account deficit would be $31.20
billion.”
If
India Ratings’ estimate came out true, then CAD for current fiscal is estimated
to between $62-$71 billion. The Total
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YES
Bank, in its report, expects crude oil prices to average at $75/barrel in FY19.
This is higher than the previous estimate of $65/barrel on the back of tighter
supply conditions. The Total Investment
& Insurance Solutions
Along-with
weaker rupee, this is expected to take the current account deficit to 2.6 per
cent of GDP as against the previous estimate of 1.9 per cent of GDP. CAD is
excess of country's imports of goods and services over its exports.
These
reports have come at a time when crude prices have started coming down. After
touching $80 a barrel, Brent crude dipped to $75.30 and is now hovering between
$76 and $77.
There
is no clear cut opinion on prices to move in which direction, but it is
believed that any significant geo-political development might push the prices
up.
Who can provide relief
to consumers?
Now,
the big question is there any room available for reduction in retail prices of
petrol and diesel. India Ratings says that states have more headroom to provide
relief on domestic oil prices. The
Total Investment & Insurance Solutions
The
value-added tax imposed by the states is on ad valorem basis. Therefore, with a
rise in oil prices, state governments garner higher revenue from the sale of
same quantity of oil as opposed to the Central Government whose excise duty is
fixed in terms of INR/litre. The Total
Investment & Insurance Solutions
“A
surge in crude oil prices, therefore, gives the state governments more headroom
to rationalise the tax rate without compromising much on their fiscal
arithmetic,” it said. The Total
Investment & Insurance Solutions
Elaborating
with an example of retail sales price of petrol in Delhi, India Ratings said
that the central excise was Rs 21.50 and VAT was Rs 12.70 on April 1, 2016.
Exactly a year later, there was no change in excise duty; still VAT went up to
Rs 14.10 paise on account of higher crude prices.
Similarly,
on May 31, excise duty came down to Rs 19.50, but VAT again went up and touched
Rs 16.70 again on account of higher crude prices. It means states have
additional earning, over and above budget estimate, of Rs 2.57 per litre on
petrol. This, as India Ratings believes, can be passed on to the consumer
easily.The Total Investment &
Insurance Solutions
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