Govt may not pass oil rate benefit to consumer

As crude oil prices plummeted to their lowest in one year, falling by about 7% in a day on Tuesday, the Centre is all set to use the windfall to set its house in order on the macro-economic front at the cost of the common man suffering high fuel prices.

The double bonanza of lower crude and an appreciation in the rupee against the US dollar comes at a time when the finance ministry was scrambling to put together measures to reduce the deficit on its current account (CAD) either through hiking import duty on gold and precious metals or planning barter with countries India has a large trade deficit.

Provisional data showed that CAD, which hovered close to $22 billion in the September quarter is expected to be range-bound if the crude prices remain at this level for the rest of the year, an official told DH.

The official data for the balance of payments in the September quarter is expected next month. A higher CAD implies that the economy imports more than it exports and hence puts undue pressure on its currency.

But a back-of-the-envelope calculation by the finance ministry has now suggested that a $10 fall in crude prices can help reduce the CAD by $8.5 billion, a huge relief for the government as it gives a lot of freedom to increase spending in the run-up to elections.

“The situation may not go out of hand now. It is a great relief from the investment point of view, too,” the official said. Higher oil prices would also have resulted in inflation, a situation the government can ill-afford when it is preparing for elections next year.

A cut in oil prices could have helped commoners had the government reduced excise duty on petrol and diesel.