New Delhi, June 18: The civil war in Iraq may upset budget calculations by raising the country’s oil bill, possibly forcing the government to rethink the tax sops under consideration.
Top finance ministry officials said oil prices would firm up further though supplies would not be hit as the southern oil bearing areas were unlikely to be affected by the war.
Officials expect crude oil prices to average about $110-$120 a barrel over the next quarter, which could mean an additional outgo of Rs 15,000-20,000 crore towards fuel and fertiliser subsidies. The subsidy bill for oil and fertiliser was earlier estimated at Rs 1,53,000 crore for 2014-15. India imports about 75 per cent of its crude oil requirement.
The problem will be compounded for emerging market currencies such as India, where the fall in the rupee will make imports costlier. The rupee has fallen from Rs 58.62 to the dollar on May 16, 2014, to Rs 60.27 today.
The government had been considering raising the minimum taxable income and other tax sops. These give-aways were expected to be recouped by a growing economy, which would raise the overall tax revenue.
However, officials said besides a higher subsidy, the spike in oil prices would mean higher inflation and a slower-than-expected pick-up in growth. Barclays estimates that a $10 increase per barrel in crude oil prices can shave off half a per cent from the country’s GDP growth.
“We do not expect oil supplies to be affected. Southern Iraq is safe. The war is in the north. However, the very fact that ISIS (the militant organisation leading the war) has come up to the outskirts of Baghdad will keep oil prices spooked and we will have to pay for our dependence on imported oil,” said officials.
The price of Indian crude has risen to $110.54 a barrel on June 13, 2014, from $106.88 a barrel at the beginning of the month. India imports around 2 million barrels a day of crude.
Officials said they had not been asked to shelve plans to give tax incentives but there could be cuts in the scope of the sops. “Maybe we will not hike the income tax floor by the extent we thought we would earlier… maybe the tax savings ceiling won’t be increased as much as we would like to, let’s see,” said officials.
Officials had earlier hinted that the finance ministry might raise the floor income for taxpayers from the current Rs 2 lakh in the budget. The government is also considering raising the ceiling for tax deductions from Rs 1 lakh.
The budget session of Parliament is likely to begin from July 7, with the first budget of the Narendra Modi-government expected to be presented on July 11.
“The dates of the budget session were discussed… it will be announced later,” law and telecom minister Ravi Shankar Prasad told reporters after a cabinet meeting.
Officials said the dates would be formally announced only after President Pranab Mukherjee gives his approval.
Finance minister Arun Jaitley will present his first budget during the session.
The economic survey, the railway budget and the general budget were expected to be presented in Parliament during the session.
Both the budgets have to be cleared before July-end as the interim budget had approved spending till July.
Prasad said the cabinet also endorsed the government’s decision to scrap the group of ministers (GoMs) and empowered group of ministers (EGoMs).
Last month, Prime Ministers Narendra Modi announced the decision to scrap nine EGoMs and 21 GoMs, arguing that this would expedite the process of decision-making and “usher in greater accountability in the system”.