19 June 2018, New Delhi — The recent rally in global crude oil prices has led to India’s oil import bill swelling 49 per cent to $115 billion in May as compared to $76 billion recorded in the corresponding month a year ago. This has pushed the country’s merchandise trade deficit to $14.62 billion during the month.
Commerce ministry data shows global benchmark Brent crude prices have increased by more than 50 per cent in May 2018 year-on-year. Crude prices have been on an upward trajectory since 2017 on the back of production cuts initiated by Organization of Petroleum Exporting Countries (OPEC), Russia and non-member allies. Also, significant drop in Venezuelan oil production and the recent economic sanctions on Iran by the US pushed oil prices to $80 per barrel last month.
The cascading effect of surging crude prices also propped up domestic fuel prices in India which reached record highs in May. Speaking on the issue of high crude oil prices, Oil minister Dharmendra Pradhan on Monday said India will raise the issue of high crude oil prices at the upcoming OPEC meet in Vienna on 22 June. Pradhan had last week met ambassadors of OPEC in New Delhi and voiced his concerns over high crude prices and its negative impact on the India consumers.
India’s cumulative oil import bill including petroleum products increased by 46 per cent to $219 billion in the first two month of the present financial year, raising concerns over an expected shortfall in budgeted petroleum subsidy and widening Current Account Deficit (CAD).
The country’s CAD is expected to reach 2.5 per cent of GDP in the current financial year from an estimated 1.9 per cent in the last fiscal, SBI Capital Markets and Emkay Global Financial Services said in separate reports. Also, sector analysts expect the surge in crude oil prices to inflate the country’s fuel subsidy bill to Rs 53,000 crore in the current fiscal year.
The government has budgeted for petroleum subsidy of Rs 24,933 crore for the current financial year, a mere 2 per cent increase over the Revised Estimate of Rs 24,460 crore allocated last fiscal. Also, as oil prices increase, upstream firms Oil and Natural Gas Corporation (ONGC) and OIL India (OIL) face increasing risk of government asking them to share the fuel subsidy burden.
“Because of the government’s widening fiscal deficit, ONGC and OIL could be asked to bear part of the Indian government’s fuel subsidy for oil, if prices stay above $60 per barrel for the fiscal year ending March 2019,” said Vikas Halan, Senior Vice President at Moody’s said in a report.
The report estimates total fuel subsidy to range between 34,000 crore and Rs 53,000 crore in 2018-19, the highest since fiscal year 2014-15, assuming Brent crude oil prices average $60-$80 per barrel. Rating agency ICRA had also recently said petroleum subsidy allocation of Rs 21,700 crore for 2018-19 would materially fall short by Rs 11,000-12,000 crore.