Budget 2018: Rising oil prices a big challenge for FM Jaitley

Budget 2018: Rising oil prices a big challenge for FM Jaitley

BUDGET 2018: Global oil prices have been hovering near a three-year high of $70 per barrel recently, propelled by production cuts by Opec and Russia.

Recovering international crude prices has raised concerns for the Indian economy amid a widening trade deficit and growing fiscal deficit projections.

"The surging crude prices will put pressure on inflation, the balance of payments and fiscal policy. We believe the rally is likely to continue until March for certain until the winter demand subsides and clarity is reached on the production plans in the US," Icra said in a note on January 12.

The trade deficit widened to $14.88 billion last month from $13.83 billion in November, data from the Ministry of Commerce and Industry showed.

Imports surged nearly 21.1 per cent year-on-year to $41.90 billion last month while exports grew 12.4 per cent on-year to $27.03 billion.

Since the start of this financial year particularly from June 2017 onwards, Brent has been on a rise due to the geopolitical tension within Opec and supply disruption caused by the cyclonic activity in the US. Since mid-July, Saudi, the largest producer pledged to lower crude oil exports.

On Monday, diesel was sold for a record high of Rs 61.74 per litre in Delhi, Rs 64.40 in Kolkata,Rs 65.74 in Mumbai and Rs 65.08 in Chennai, according to the Indian Oil Corporation website.

Worldwide crude demand is 96 million barrels a day and the country imports around 4.2 million barrels daily or 1,568 million barrels per annum, making it the third-largest consumer globally.

At this consumption level, a dollar increase in crude price on a permanent basis will increase the oil import bill by roughly Rs 100 billion per annum.

Accordingly, crude import bill will rise by around $1.5 billion for every dollar increase in crude price, the Icra report said.

The budget deficit exceeded the target for fiscal year 2018 by the end of November, while inflation accelerated to the quickest pace in 17 months in December, data showed Friday.