Jaitley’s fiscal math will be tested by oil-price rally

With four months to go for the close of the fiscal year and $60 a barrel seen as the new normal for crude oil prices, Finance Minister Arun Jaitley and his team may have to work hard on their fiscal math for Union Budget 2018-19.

Jaitley and his team are keen to maintain the fiscal consolidation roadmap, which is considered a key indicator of economic well-being by rating agencies and international investors.

Therefore, as they prepare for what is being seen as the Narendra Modi-led government’s last full Budget before the General Elections in 2019, their approach may be cautious, said government officials, politicians and economists that BusinessLine spoke to.

The Centre, which is also facing pressure on revenues from other quarters, may opt for a consolidation rather than make radical announcements. The uncertainty in tax collections following the implementation of the Goods and Services Tax, plans to recapitalise public sector banks, and the nascent economic recovery, which may keep corporate tax receipts muted, will be factors weighing on its decision.

Arvind Virmani, noted economist and President, Forum for Strategic Initiative & Chintan, believes that although there is some uncertainty about the fiscal deficit, it is manageable. Hardening oil prices, he says, are not a fiscal problem, given that domestic prices of petrol and diesel have been deregulated.

Virmani feels that any shortfall in revenue can be made up by accelerating disinvestment, given the booming stock market.

Sunjoy Joshi, Chairman, Observer Research Foundation, feels that the rating upgrade by Moody’s also increases pressure on the government to retain fiscal discipline. “Global crude oil prices are likely to hover around $60 per barrel even next year. And if there is any turmoil in West Asia, the the party will be over...like this year, oil prices are expected to continue to put some pressure on government finances,” said a source.

However, Narendra Taneja, energy expert and BJP National Spokesperson, maintained that “the recent structural economic reforms” have ensured that India is “well prepared to deal with any spikes in crude prices”.

Taneja does not see crude prices going beyond the $55-65 per barrel band on a sustained basis as world markets are well supplied. The average price at which Indian refiners bought their crude oil has fluctuated from $52.49 a barrel in April to around $47.86 in June-July, rallying upwards from August. Indian Basket prices stood at $60.27 per barrel on November 17.

Impact on the fisc

For the current fiscal year, the government had factored in a price band of $56-60 a barrel, so anything beyond would put pressure on the numbers.

CARE Ratings expects prices of crude oil (Indian Basket) to range between $55 and$57 a barrel till the end of this fiscal, due to the paring of production by OPEC countries and Russia.

The Centre has targeted a fiscal deficit of 3.2 per cent in the current fiscal year and 3 per cent in FY19. “The discussions for Revised Estimates for this fiscal and Budget Estimates for 2018-19 are still underway. It is too early to predict what shape the final Budget will take,” said an official.

The Union Budget is expected to be tabled on February 1, 2018.

On October 3, the Centre had lowered the excise duty on petrol and diesel by ₹2 a litre to cushion the impact of high prices on the common man. But, this is estimated to cause a revenue loss of ₹13,000 crore in the last six months of the financial year.