As crude oil price in the global market breached the $70 per barrel-mark, large importers of oil like India and China are faced with an imminent danger of price rise.
To put things in perspective, the price of crude is up about 18 per cent this year and is now trading at the highest since 2014. As a fallout of this, fuel exporters get to enjoy windfall gains, as consumer nations take a hit.
At more than 28 per cent, oil and related products constitute the largest chunk of India’s imports. Data from the commerce ministry shows that India’s oil import bill amounted to more than Rs 7.5 lakh crore in the fiscal year 2017-18.
Worryingly, the bill is set to inflate further in the coming years. India’s dependency on fuel imports has swelled over the years. From 77.3 per cent in 2013-14, it has gone up to 81.7 per cent in 2016-17. Naturally, with both crude oil prices and imports edging up, India’s import bill is set to rise.
Every dollar increase in crude oil price adds to the country’s net import bill by $0.51 billion. This in turn affects the country’s foreign exchange reserves and accounts for widening of the trade deficit.
HOW DOES IT AFFECT YOUR DAILY LIFE?
From a consumer pocket’s perspective, the pinch is being felt for a while now as petrol and diesel prices have hit all-time highs multiple times in the recent past.
A major share of petrol and diesel prices are made up of taxes- excise duty collected by the Centre and Value Added Tax (VAT) collected by the states. As a matter of fact, 48.2 per cent of what you pay for petrol is central and state taxes while for diesel, excise and VAT add up to 38.9 per cent.
Finance Minister Arun Jaitley had raised excise duty nine times 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 Rs 2 a litre.
In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre during the period that helped the government’s excise mop up more than double its revenues -- to Rs 242,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.
Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT but just four of them- Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh- reduced rates while others including BJP-ruled ones ignored the call.
INDIA’S CENTRAL BANK IS WORRIED
Being among the most-vulnerable economies to the boiling oil price problem, the RBI (Reserve Bank of India), India’s central bank finds itself dealing with a big headache from this unprecedented surge in crude prices.
With the rupee also falling sharply against the US dollar, economists are already pushing forward their forecasts for RBI’s interest-rate increases as India’s biggest import item gets more expensive. India buys crude in dollars, a weak rupee hits the country`s coffers adversely.