Rising Oil Rates May Cause Rs 1-Lakh Crore Revenue Loss To Govt, Says SBI Report

Brent crude oil, which surged past $105 per barrel on Thursday for the first time since August 2014 following Russia's invasion of Ukraine, however retreated and fell to $101 on Friday

The SBI report noted that if the government reduces excise duty on petroleum products further by Rs 7 per litre in March, it will incur excise duty loss of Rs 8,000 crore for per month. Image: Getty

New Delhi: Surging crude oil prices, which have recently hit $105 a barrel due to the ongoing Russian invasion in Ukraine, spell trouble for India and can upset its fiscal math, according to State Bank of India’s (SBI’s) economic wing report.

The rising oil prices can cause the central government a revenue loss of around Rs 95,000 crore to Rs 1 lakh crore in FY23.

Brent crude oil surged past $105 per barrel on Thursday for the first time since August 2014, following Russia's invasion of Ukraine. It however retreated and fell to $101 on Friday. It was trading at $101.93 a barrel at 1330 hrs.

SBI’s ‘Ecowrap’ said that based on the existing value-added tax (VAT) structure and taking Brent crude price of $100 - $110 per barrel, the public sector lender believes diesel and petrol prices should have been higher by Rs 9-14 each by now.

The government has kept the petrol and diesel prices unchanged since November 2021.

A top official said that the government is "closely monitoring the situation" and will "take appropriate steps as and when required."

The SBI report also noted that if the government, however, reduces the excise duty on petroleum products further by Rs 7 per litre in March after elections and prevent the prices of petrol and diesel from rising, then it will incur excise duty loss of Rs 8,000 crore for per month. 

According to the report, “And if we assume that the reduced excise duty continues in the next fiscal and assuming petrol and diesel consumption grow around 8-10 per cent in FY23, then the revenue loss of the government would be around Rs 95,000 crore to Rs 1 lakh crore for FY23.”

In this context, the FY23 Budget numbers that are pegged conservatively would act as a clear counter cyclical buffer for such revenue loss, it added.

India’s retail inflation stood at 6.01 per cent in January, at a seven-month high, is already near the RBI’s tolerance band. Further, the ongoing Russia-Ukraine conflict will likely add to the central bank’s woes.

Notwithstanding the trajectory of crude oil prices, the impact on inflation in the Indian context will be keenly watched.