The recent boil in crude oil prices has prompted the Reserve Bank of India (RBI) as well as the Niti Ayog to flag the need for the Centre and states to contain input cost pressures on businesses including the cost of food and agri produce. Unfortunately the crisis is far from over; infact it has just begun. Goldman Sachs has projected crude oil to reach US$ 90 per barrel by the end of 2021. This rise is significant considering that the price of India’s basket of crude oil that represents the average of Oman, Dubai and Brent had plunged up US$ 19.90 in April 2020.
Most energy import-dependent economies are in a soup, including India which imports 85 per cent of its oil and 53 per cent of its gas requirements.
Impact has started being felt with prices rising both of petrol/diesel but also of CNG by more than couple of rupees.
Question is how severe could be the impact on prices of food and agri produce and what should the Indian economy do? When the price of India’s basket of crude oil had plunged to its nadir in April 2020, that had given the Indian central government an opportunity to raise taxes on petrol and steeply, making excise duty one of the major contributors to the exchequer in 2020-2021.
With the rise in global oil prices, Indian central government has no choice but to cut its own dues. Unless these taxes are cut, which exorbitantly high, nothing can stop the impact to start pinching the ordinary citizens in a big way. Cut in taxes will definitely impact revenues and governmental spending, but this will have to be managed as the general public, particularly the rural population is already bearing the impact of job cuts and price rises post the two lockdowns that adversely impacted not just the economy but also the pockets of rural population including the farmers.
India spent US$ 62.71 billion on crude oil imports in FY21, US$ 101.4 billion in FY20 and US$ 111.9 billion in FY19. This cut in spending was because of loss in consumption during the lockdown period and the drip in the crude prices. The consumption too is rising now and so are the prices.
India is a key refining hub in Asia, with an installed capacity of over 249.36 million tonnes per annum (mtpa). India has been raising it’s voice for a global consensus on “responsible pricing” as it plans to grow it’s refining capacity to 400 mtpa by 2025.
