Govt okay with oil at $60, says Jayant Sinha

Minister of State for Finance Jayant Sinha said on Friday the government's fiscal and inflation calculations would not be affected if crude oil prices stayed below $60 a barrel.

"If oil prices stay in the range that most forecasters are expecting them to be, which is $40-60, we will be fine. If it goes beyond that range, then it becomes a question," Sinha told Press Trust of India.

A number of policy makers told Business Standard that the Centre's comfort level on oil prices was around $55, beyond which the government would have to review its petroleum subsidy and larger spending projections. The government could also resort to cutting additional duties on petrol and diesel, they said.

Crude oil prices have breached $50, with both Brent and West Texas Intermediate trading above the mark for the past few weeks. On Friday, Brent and WTI were trading below the $50 level.

India spent $63.96 billion on crude oil imports in 2015-16, about half of the $112.7 billion outgo in 2014-15 and $143 billion in 2013-14. For the current financial year, the crude oil import bill has been pegged at $66 billion, at an average import price of $48 per barrel.

The 2016-17 Union Budget was planned keeping in mind an average crude oil price of $50. Compare this with 2015-16, when policymakers were looking at an average of $70 but prices went to as low as $35 in January. This windfall allowed Finance Minister Arun Jaitley to meet the fiscal deficit target of 3.9 per cent of the gross domestic product in 2015-16.

This year though, the fiscal breathing space is tighter, especially with spending commitments to the Seventh Pay Commission, infrastructure and agriculture.

"If crude prices creep above $55, our calculations may have to be relooked," an official told Business Standard. "Some savings are expected from direct benefit transfers in kerosene, but beyond $55, even those may be offset," the person said.

The budgeted petroleum subsidy for the year is around Rs 27,000 crore, against revised estimates of Rs 30,000 crore in 2015-16. That was when oil was hovering around $40 for most of the year.

India, which imports 80 per cent of its oil needs, has to spend Rs 9,126 crore ($1.36 billion) more every year for every dollar increase in crude oil prices.

A second official said due to better expenditure management the Centre might not have to resort to extensive spending cuts if oil prices shot up, but a call could be taken to save from some of the minor unspent allocations to ministries to make up for any additional burden on the exchequer. According to the Indian Oil Corporation website, the excise duty on petrol is Rs 21.48 per litre and on diesel is Rs 17.33 per litre. "Right now we are comfortable passing on the increase in prices to consumers. The excise duty is an additional revenue generating measure. That could be gradually cut back if crude goes up further," the second person said. Petrol prices have been hiked five times since March, totalling Rs 8.99 a litre, while diesel prices have been increased by Rs 9.79 per litre as international oil prices climbed to $50 per barrel for the first time since October 2015. Every rupee per litre increase in petrol price leads to a 0.02 per cent rise in WPI inflation and 0.07 per cent for the same amount of increase in diesel prices. When oil prices slumped in the second half of 2014 and 2015, the government hiked the excise duty on petrol and diesel nine times to meet its revenue targets. In all, it raised the excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47.