Oil price rise puts $70-bn burden on economy

Steep crude prices will pose stiff challenges in the form of higher current account deficit, higher inflation and lower growth

New Delhi: Indian economy is expected to incur an additional $70 billion burden (or 1.9 per cent of the country's GDP) in FY23 as compared to the current fiscal at an average crude price of $120 per barrel, said brokerage house Kotak Securities.

Steep crude prices will pose stiff challenges in the form of higher current account deficit, higher inflation, and lower growth, it said.

Ongoing hostilities between Russia and Ukraine as well as lack of fresh supplies pushed crude oil price to a 14-year high of $130 per barrel.

"The additional cost will be borne by the government in the form of lower excise revenues and higher Minimum Support Prices, households in the form of higher retail prices of petroleum products and companies; however, companies will pass on higher fuel costs to households eventually."

"MSPs of various crops sharply increased in input costs and procurement to support farm incomes. We would not rule out a 10-12 per cent increase in MSPs in FY2023 versus the average 3-4 per cent increase seen in the past few years." The government may have to cut excise duty on diesel and gasoline further to mitigate the impact on consumers, it added. Assuming an excise duty reduction on diesel and gasoline by Rs 10 per litre, excise revenues may decline by $20 billion, it said.

Further, the brokerage believes households will have to bear the bulk of the burden of higher gasoline, diesel and LPG prices assuming oil companies do not bear any share and the government bears some share on auto fuels.