India to reap $12-b budget windfall from oil price slide

It would cut national import bill by $18 b

A plunge of nearly half in oil prices could help Finance Minister Arun Jaitley reap a fiscal windfall of at least $12 billion (Rs 75,000 crore) when he presents his 2015-16 budget in February, two government sources said.

The savings would come in the form of reduced fuel subsidy costs and higher petrol and diesel levies, the sources said. In addition, Finance Ministry officials have proposed restoring a crude oil import duty that was scrapped in 2011.

As a result, the government will claw back most of the money that India saves on oil imports. That would help Jaitley hit borrowing targets but dilute any boost to consumption in Asia's third-largest economy.

Energy-hungry India imports around 4 million barrels of oil per day and the net cost of the country’s oil imports is expected to total $88 billion in the fiscal year to next March, based on a budgeted oil price of $105 per barrel.

Officials drawing up Jaitley’s first full-year budget are pencilling in a view that oil prices will average $65-$70 in 2015-16. That would cut the national import bill by $18 billion, or 0.9 per cent of GDP, they reckon.

“Benefits from the fall in oil prices would reflect in the Budget through lower oil subsidies and higher tax projections next year,” one senior Finance Ministry official told Reuters.
Sources estimate that the overall fiscal boost can total Rs 75,000 crore. More than half, Rs 40,000 crore would come from savings on oil subsidies.

Tax and don’t spend
Prime Minister Narendra Modi has freed prices for diesel, which account for 40 per cent of refined fuel consumption.

Taking advantage of the resulting fall in pump prices, the government has raised factory gate duties on petrol and diesel twice in the last month. That means state coffers, and not drivers, will benefit to the tune of $1.6 billion this fiscal year and nearly $5 billion next year.

A revival in the profitability of state-owned oil refiners like Hindustan Petroleum Corporation and Indian Oil Corporation could generate another $1 billion in extra revenues.