Crude Shock Awaits Centre’s Economic Planning Ahead Of Key State Elections In 2022

28th Sep,2021

Crude Shock Awaits Centre’s Economic Planning Ahead Of Key State Elections In 2022

Goldman Sachs has boosted its Brent crude oil price prediction to $90 per barrel by the end of the year, up from $80. The projection has been updated due to the global economy's faster recovery of gasoline consumption. Even as the government searches for methods to fulfil its budgetary goals without jeopardising its spending plans, a threat looms on the horizon that might put the government in a bind. The threat is an unanticipated increase in worldwide crude oil prices. Goldman Sachs has boosted its Brent crude oil price prediction to $90 per barrel by the end of the year, up from $80. The projection has been updated due to the global economy's faster recovery of gasoline consumption. If crude oil prices rise to the levels anticipated by Goldman Sachs, the government will have to decide whether to decrease the excise duty collected on gasoline and diesel, or continue to generate more money to fulfil its budgetary objectives. The NDA administration has funded its expenditure programmes by levying a high excise charge on petroleum goods due to lower-than-expected GST receipts since its adoption in 2017. When Covid caused the economy to shut down completely, the government increased the excise charge on fuel from Rs 19.98 (from July 6, 2019) to Rs 22.98 (effective March 14, 2020) in anticipation of a significant drop in income. It was also increased to Rs 32.98 per litre. While the opposition has chastised the government for charging exorbitantly high gasoline taxes, the administration has so far kept up a brave front, risking a political backlash in order to fund social programmes such as MNREGA and food subsidies. Several state governments have employed the same technique to boost income by maintaining high VAT rates on fuel costs on an ad valorem basis. However, if gasoline costs in India exceed a particular level, the federal government has typically been blamed. The price of petrol and diesel exceeded the Rs 100 barrier for the first time in the country earlier this year, thanks to hefty excise charges imposed by the central government and many state governments.
However, if oil prices rise more on the international market, the decision not to reduce excise charges might increase the price of gasoline and diesel to previously unheard-of levels in the country. Petroleum product prices are closely linked to greater CPI inflation. In the consumer price index, transportation and fuel account for 4.4 percent of the weightage. Inflationary pressures in other industries, such as FMCG, paints, fertiliser, and a variety of other goods, are exacerbated by high petroleum costs.