New Delhi, Aug. 28: The country’s oil subsidy bill for 2013-14 is expected to be more than double the budget estimate under the impact of the Syria crisis and the free fall of the rupee.
While Brent crude has surged to a six-month high of over $117 per barrel, West Texas Intermediate rose above $112 per barrel, the highest since May 2011, following the possibility of US military intervention in Syria.
Even though India does not import crude from Syria, the geo-political situation in the region will have an impact on the oil bill.
“The oil import demand is playing a role as far as the rupee is concerned. Crude oil prices have been going up pretty steeply in the last few weeks and with the rupee depreciating there is a double whammy kind of an impact,” Aditi Nayar, an economist with Icra, said.
The twin forces of a weakening rupee and rising oil prices will add to the deficit burden. While the trade deficit in the last fiscal was $191.6 billion, the current account deficit touched an all-time high of $88.2 billion, or 4.8 per cent of the GDP, in 2012-13.
In the budget for 2013-14, the government had allocated Rs 65,000 crore for oil subsidy, which is 32 per cent lower than the last fiscal’s revised estimate of Rs 96,879.87 crore.
“We expect fuel subsidies for 2013-14 at Rs 1.4-1.5 lakh crore, up from Rs 1.3 lakh crore expected in June 2013. The currency will remain under pressure until the current account deficit narrows,” Vikas Halan, Moody’s vice-president and senior analyst, said in a research report.
Analysts said an imported barrel of oil would now cost over Rs 7,000 per barrel compared with Rs 5,500 a barrel in April.
Every fall in the local currency by Re 1 will increase the under-recovery by Rs 9,000 crore annually. Every $1 increase in crude prices will add Rs 5,000 crore annually to the subsidy burden.
Oil market watchers said even though Syria was not a major oil producer, crude prices could increase to $125 per barrel in the next few days in the event of a military strike and spike to $150 per barrel if the conflict resulted in greater disruption in West Asia.