By Abhishek Sankhyayan
New Delhi: Crude oil touched $ 100 for the first time in seven years shortly after Russia invaded Ukraine. The growing conflict is expected to have major repercussions worldwide, with the West imposing sanctions on one of the world’s largest producers of oil and natural gas.
In such a situation, India may not even be able to bypass the effects of a global crisis. Let’s see how fighting can affect you.
1.Tax collection of government
On January 4, crude was trading around $ 80, at that time the price of oil in Delhi was Rs 95.41 per liter. Crude oil has risen to about 25 percent. The price of crude oil has increased directly by Rs 10 per liter. In such a situation, Petro retailers will review the price of oil and diesel early after the conference results on March 10.
On November 3 last year, the Modi government reduced tariffs on petrol and diesel by Rs 5 and Rs 10 respectively. Following the move, many state governments have also reduced VAT.
As we know, taxes on oil products are a major source of revenue for the state and central governments. Petro products are taxed at the highest level in India compared to our neighbors.
Central Govt will be forced to pass a charge to customers if charges do not go down in the coming weeks. In such cases the Federal and State Governments will have to review the rate of its taxes ie Excise and VAT, which will affect the revenues of the governments. The loss of project revenue will force governments to cut spending on their development projects.
Finance Minister Nirmala Sitharaman told Rajya Sabha that the central government has received Rs 2,10,282 crore in fiscal 2019, Rs 2,19,750 crore in 2020 and Rs 3,71,908 crore in 2021 through Central Excise Diesel on oil and gas. .
2. Rise in Inflation
According to a study by Ernst & Young India, 50 per cent of the country’s total oil market is divided into diesel, 20 per cent gasoline and kerosene and 25 -30 per cent in ATF. In such a situation, the impact of expensive diesel will be seen on immediate cargo costs.
An increase in the prices of oil products indirectly affects labor costs as well. On February 10, the RBI said it expects inflation to touch the tolerance group in March 2022 and will be under control from the next quarter. Essentially, the RBI has projected the CPI (Consumer Price Index) rate to be 5.3 for the current fiscal year and 4.5 for the coming fiscal year 2023.
3. Higher interest rates, Expensive loans
The Reserve Bank (RBI) has not revised interest rates for the past two years. Currently, the repo rate is 4%. The RBI and the government believe that low interest rates will create liquidity in the market, which will contribute to growth. But after covid, central banks around the world have warned of a change in operating conditions.
According to the RBI estimate, there is an increase of 0.24 per cent on CPI when oil prices increase by $ 10 per barrel. If the Consumer Price Index (CPI) rises due to higher prices, then the RBI will be under pressure to raise interest rates. In such a situation, your home loans, car loans and personal loans will become more expensive.
4. Impact of Growth GDP
According to the Nomura study, a 10% increase in crude tariffs led to a 0.2 percentage point reduction in GDP growth. The 2022-23 Economic Survey estimates GDP growth of 8-8.5%. However, the projected GDP growth for the next fiscal year is based on an oil price target of $ 70-75 per barrel.
Budgets expect that by the end of this fiscal year, India will register real GDP growth after two years. Due to the Covid crisis, the country’s Gross Domestic Product (GDP) did not increase for two years. In such a situation, a reduction in the GDP growth rate would have a negative impact on the government’s ability to collect taxes and create jobs.
5. Current Account Deficiency
Current account deficit is a situation when the gap between the import value of goods and services exceeds the export value. India’s current account deficit reached $ 9.6 billion in the second quarter (Q2FY 22), which is 1.3 percent of GDP. According to ICRA, it could exceed $ 25 billion in the third quarter.
According to the RBI, an increase in the price of crude oil by $ 10 per barrel increased the current account deficit by 0.5 percent.
If crude oil is generally above $ 100, then CAD (Current Account Deficit) may reach one-third of GDP. Due to which the pressure will be on the rupee and the value of the rupee could fall to 78, said Tanvi Gupta, Chief Security Officer of UBS Security.