Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20
BW Businessworld

High And Dry

Photo Credit :

Over the past six months, global crude oil prices have been on a steady decline. The India basket of crude has fallen from $112 per barrel in mid-June 2014 to $75.5 per barrel in mid-November ber. The almost $40-perbarrel fall in the Indian crude basket has meant a decline in the country’s oil import bill. India’s oil import bill during the last fiscal was around $150 billion. It is estimated that a $25 fall in crude oil prices translates into a $10 billion stimulus to the Indian economy. 
 
Much of that fall in prices has been passed onto consumers who have seen the price of petrol fall six times from Rs 73.6 per litre in early July to Rs 64.24 per litre now in Delhi. Diesel prices too have fallen from Rs 57.84 a litre in early July to Rs 53.35 per litre in Delhi. That has helped the government to remove subsidies on diesel.
 
While the fall in prices is a massive stimulus to the Indian economy, it has not made any significant difference to the fortunes of state-owned oil companies. Now, oil companies too have started to realise the need to earn while prices are low. Although crude prices have continued to fall, the government has refrained from reducing prices further. It has kept prices steady while hiking the excise duty on both petrol and diesel by Rs 1.50 per litre. That will ensure an increase of Rs 6,000 crore in tax collections this fiscal.
 
The government has taken this route as it would not like to hike prices in case there in an upturn in crude oil prices. Should such a situation arise, the government can simply forego the hike in excise duty while keeping fuel prices at current levels. Keeping prices flat and raising the excise duty has twin advantages for the government. One, it can reduce the duty when crude prices start rising, without raising fuel prices for customers. Two, the government will be spared from taking the unpleasant step of raising fuel prices once customers get used to lower prices. While the government has devised a way to take advantage of the falling crude prices, state-owned oil companies have yet to benefit from lower prices. The reason is clear: since most oil companies trade through oil futures, by the time they end up buying, prices have fallen further. As a consequence, they end up paying more when prices are falling by the day.


Tags assigned to this article:
economy energy and power crude oil top 2 anup jayaram