Prime Minister Narendra Modia is likely to meet finance minister Nirmala Sitharaman on Thursday evening to discuss the economic impact of ongoing Russia-Ukraine war. Following the blistering announcement of Russian President Vladimir Putin to start military operations in Ukraine border on Thursday morning, the Brent crude oil price hit $100-mark after almost eight years.
The escalating tension between Russia and Ukraine will push the oil prices further, believed expert. The Prime Minister’s Office, finance ministry and oil ministry had a detailed discussion on steep jump in global oil prices, according to CNBC-TV18 sources. PMO has asked the finance ministry to reassess the currenct excise duty levels in India. The finance ministry is analysing how much excise duty hit can be absorbed by the government amid this geo-political crisis, the sources added.
It must be mentioned that petrol and diesel prices touched all-time high in India last year. To provide some relief to common men, the central government announced to reduce excise duty on petrol and diesel by Rs 5 and Rs 10, respectively on November 3. Several states followed the footsteps of the government and reduced the VAT on fuel prices. Petrol and diesel prices have remained same in India since then.
Now with Brent crude oil price hitting $105 on Thursday, India is likely to increase the petrol and diesel prices soon. The state-run oil marketing companies are absorbing Rs 10 per litre loss on petrol and diesel every day. Oil ministry informed the finance ministry and Prime Minister’s Office about the current condition, the sources mentioned.
The central government has not taken any decision on reducing excise duty yet. The decision will be taken at the highest political level, the sources added.
Finance minister Nirmala Sitharaman earlier stated that the rising crude oil prices pose a threat to India’s financial stability. “It is difficult to say how it will go. Even today, in the FSDC, when we were looking at the challenges which are posed for the financial stability, crude was one of the things,” Sitharaman said after Financial Stability and Development Council (FSDC) meeting earlier this week.
Russia-Ukraine War: Crude Oil Hits $105 per Barrel, How it Will Impact India
India does not depend heavily on Russia for its crude import. So there will be a negligible impact of supply-chain disruptions. However, Russia is the second largest oil producer in the world. Given its dominance in the global crude oil supply a suspension in production activities by Russia will impact global prices of crude with an impact also applicable to India.
“It could could impact India’s trade deficit, weaken the Rupee and impact the fiscal deficit unless the entire rise in the crude oil prices is passed over to the customers,” said Deepak Jasani, head of retail Research, HDFC Securities.
“Oil inching higher is not a good sign for the Indian economy as it forms a big part of our import bill. The government has not passed on the impact of the recent rise in oil prices however we believe sooner or later it would pass on which would lead to inflation. Moreover, high import bills would also put pressure on currency and India’s fiscal balance,” said Ajit Mishra, VP-research, Religare Broking Ltd.