Centre has room to isolate consumers from 15% hike in crude prices: MOFSl

New Delhi, March 26

Centre has the room to isolate consumers from roughly 15 per cent hike in international crude oil prices, said Motilal Oswal Financial Services.

According to the brokerage house's estimates, the Centre has the financial capacity to take the hit on its own income statement without breaching the fiscal deficit targets.

"Considering our revised crude oil prices forecasts of $80 per bbl in FY23 (from $70 per bbl earlier), if the GoI decides to take the entire burden, it would cost $12-13 billion (or 0.4 per cent of GDP) next year," the brokerage house said in a report.

"Our recommendation is that if crude oil prices follow our projected trajectory, it would be better for the GoI to bear the burden of higher crude oil prices rather than passing it on to the consumers."

However, if crude oil prices turn out to be higher, the consumers may be required to share the burden.

"This is because our calculations suggest that like FY22, GoI will receive an additional gross taxes totaling Rs 1.7 trillion in FY23. With LIC divestment postponed to next year, even with an assumption of higher devolution, GoI's total receipts could exceed BE by Rs 1.3 trillion in FY23E."

"If the GoI incurs the entire burden of $10 per bbl hike in crude oil prices totaling 0.4 per cent of GDP, total spending of the GoI will increase by Rs 1 trillion to Rs 40.5 trillion in FY23E v/s the BE of Rs 39.5 trillion."

Besides, assuming an additional Rs 0.5 trillion on account of some other spending, the total spending of Rs 41 trillion in FY23E implies fiscal deficit of Rs 16.7 trillion next year.

Lately, global crude oil prices have been volatile surging by nearly 35-40 per cent on fear of tight supplies due to the ongoing Russian-Ukrainian conflict.

Besides, the high crude oil cost has led state-owned oil marketing companies to slightly increase the retail selling prices of petrol and diesel.

These prices were revised for the very first time on March 22 after a gap of more than 4-months.

Centre has room to isolate consumers from 15% hike in crude prices: MOFSl