Oil price fall brings additional Rs 7500 cr for FM, Shivaji Sarkar :The falling oil prices is likely to bring a windfall for the government and its finance minister Arun Jaitley. It is estimated to save almost $ 12 billion (Rs 7500 crore) when the new budget is presented in February, 2015.
The government would be making massive savings because of reduction in fuel subsidy and recently increased excise duties on diesel and petrol. Sooner, the finance ministry officials propose to reimpose import duty of 5 per cent on import of crude. That would be an additional savings.
(However, this requires an approval of prime minister Narendra Modi. He is of the view that if inflation falls that would help the government more that any increase in import duty. The prime minister is stated to have asked the finance ministry to reassess the impact of the decision to increase import duty)
Besides, the government enterprises like railways and airlines are not passing on the benefit of lower fuel prices to the users. Neither the railways nor Air India has tried to do away with fuel adjustment component – additional fuel surcharge levied on each ticket. This is likely to add to the kitty of the government. This would mean the government would have to shell out less to these organizations in terms of budgetary support.
This would also reduce Jaitley’s fiscal deficit – borrowings. This would be an opportunity for Jaitley to boost government investment, create new jobs and increase production in the Asia’s third largest economy.
The country imports around 4 million barrels of oil per day and the net cost of the country’s oil imports is expected to total $88 billion in the fiscal year to next March, based on a budgeted oil price of $105 per barrel.
Finance ministry officials are redrafting the budget on the base oil price of $ 65. ( They expect to come down further and hope it would plateu around $ 40, if the situation remained favourable). Even on a conservative estimate they expect the import bill to be slashed by around $ 20 billion, almost one percent of the GDP.
A revival in the profitability of state-owned oil refiners like Hindustan Petroleum Corporation and Indian Oil Corporation could generate another $1 billion in extra revenues.
Jaitley is struggling to hit his fiscal deficit target of 4.1 percent of gross domestic product this fiscal year. He wants to cut it to 3.6 percent in 2015/16, and 3 percent in 2016/17.