FY19 Budget may assume crude oil price at $65/barrel

The ongoing price rise could mean a higher subsidy on petroleum products this year and the next

Union Budget 2018-19 is likely to assume an average crude oil price of $65 a barrel. It was $55 a barrel for 2017-18. Crude oil prices have been rising because of an extension of the earlier production cut deal by the Organization of the Petroleum Exporting Countries (Opec). India imports about 80 per cent of its crude oil consumption.

This publication has learnt from senior government sources that the ongoing rise could also mean a higher than anticipated subsidy on petroleum products this year and the next. For 2017-18, this had been budgeted at Rs 25,000 crore. For 2018-19, it was projected at Rs 18,000 crore in the medium-term expenditure framework. By the time Finance Minister Arun Jaitley presents the Budget proposals on February 1, it could be Rs 25,000 crore, said an official.

“The Finance Ministry and the Oil Ministry have deliberated the issue of rising crude oil prices. It could impact this year and next year’s subsidy outlay,” said an official. The person said the budget-makers are considering whether to keep next year’s target at Rs 25,000 crore as well in light of increasing prices.

As of now, the petroleum subsidy is applicable only for liquefied petroleum gas (LPG or cooking gas) and kerosene. Experts said with global energy scenario changing — the Opec deciding to extend the production-cut deal by a year by keeping 1.8 million barrels per day off the market in 2018 — international fuel prices are set to go up.

Raising concerns, the price of non-subsidised LPG had risen 59 per cent to Rs 742 a cylinder in November; it rose 16 per cent for a subsidised cylinder, to Rs 496. The rises were necessitated due to crude oil prices going well beyond the budgeted $55 a barrel for 2017-18.

“For the first six months of the financial year (April-September), cumulative subsidy claims on LPG and kerosene submitted to the petroleum ministry stood at Rs 9,079 crore. This is set to rise further with the recent increase,” said a second official. The LPG subsidy, earlier expected at Rs 13,000 crore, is now set to be around Rs 15,000 crore. 

A dollar increase in crude prices is estimated to raise the annual import bill by roughly Rs 10,000 crore.

In October, the government had cut the excise duty on petrol and diesel by Rs 2 a litre to tame rising inflation and shield consumers from the rising price of these automobile fuels. It meant a loss in revenue of Rs 13,000 crore for the rest of this financial year. 

On Sunday, the price of petrol in Delhi was seen at Rs 69.15 a litre, while that of diesel was at Rs 58.37. Interestingly, in Mumbai, this was seen at Rs 76.61 and Rs 61.21 a litre respectively.

Crude Awakening

• Finance ministry, oil ministry discuss surge in global prices
• Price assumed for FY18 was $55/barrel
• Medium-term expenditure framework projects FY19 oil subsidy at Rs 18,000 crore; officials mull raising it to Rs 25,000 cr
• FY18 oil subsidy Budget Estimates at Rs 25,000 crore
• If global prices continue upward, Centre may hike excise duty
• On December 10, the price of petrol in Delhi was seen at Rs 69.15 a litre, while that of diesel was at Rs 58.37
• In Mumbai, this was seen at Rs 76.61 and Rs 61.21 a litre, respectively