Crude oil costs less than water

New Delhi: The price of Indian basket crude oil for the first time in 12 years dipped below $30 dollar level, to $29.24 per barrel on Thursday. This means that crude oil is now cheaper than a bottle of mineral water. At current rate, a litre of crude oil will be around Rs 12 as against Rs 15 for a litre for bottle water. In rupee terms, the Indian basket price fell to Rs 1,956.65 a barrel on Thursday. It is also for the first time that in Indian currency the price has dipped below Rs 2,000 level in many years.

The price of Indian basket of crude oil has been around $33.58 a barrel between December 12 to December 29 as supply glut, demand slow down and Opec’s reluctance to cut output led to the lowest crude oil price in over a decade. Crude oil price has been falling since June 2014 when they were around $120 a barrel.

Apart from crude oil cost, the price that we pay for petrol or diesel also includes charges such as transportation, refining cost, taxes, oil distribution companies’ profits and fuel retailer’s margin.

Consumers, however, may not be able to enjoy the benefits of low crude oil as the government could use this opportunity to increase excise duty to mop up tax revenue.

Despite the falling fuel prices, the government has passed on only a part of the benefit to consumers by cutting petrol and diesel prices. The remaining saving in the cost was taken away by the government in form of additional excise duty to meet the tight fiscal deficit target of 3.9 per cent of the GDP.

There are indications that the government will again increase the excise duty on petrol and diesel to shore up its revenue as it has fallen short of its revenue estimates from disinvestment due to poor market conditions. The government may also not realise the anticipated revenue from direct taxes as companies are still struggling with subdued profits.

The government has raised excise duty on petrol and diesel three times in last two months and by seven times since November 2014. Last week, the government hiked excise duty on petrol by Rs 0.37 per litre and by Rs 2 a litre on diesel to mop up a little less than Rs 4,400 crore.

The government raised excise duty on petrol and diesel, three times in quick succession, which will help it garner an additional Rs 10,000 crore in the fiscal. The government has also used low crude oil prices to decontrol diesel and petrol prices.

While lower crude oil price may hurt Middle Eastern countries and Russia among others badly, it is a boon for an oil importing country like India. According to Interna-tional Energy Agency, oil price could remain subdued at least until 2017.  The low fuel price will allow India to keep inflation under control, helped in phasing out fuel subsidies and also managed to increase excise duty collection.