If crude remains near USD 100/bbl, each month of crisis to add Rs 30,000 cr additional cost for centre: Report
New Delhi, March 12
If crude oil prices sustain above USD 100 per barrel in FY27, the Central government's annual additional expenditure could rise by Rs 3.6 lakh crore, according to a report by Elara Securities.
The report highlighted that the ongoing Middle East conflict shows few signs of de-escalation, which could intensify Asia's energy crisis and trigger global supply chain disruptions.
It stated "scenario where Brent crude sustains at USD 100/ bbl through FY27E, India's current account deficit (CAD) could widen to 2 per cent of GDP (from 1 per cent at US D 70/bbl), USD -INR could weaken further to 94 - 95, while the Centre's annual additional expenditure would rise by INR 3.6tn/annually".
It noted that prolonged interruptions in the Strait of Hormuz (SOH) beyond mid-March, delayed energy supply normalization from affected producers, and persistent geopolitical uncertainty could put pressure on India's external sector.
These developments may also spill over into the domestic economy and lead to rising fiscal pressures.
This estimate assumes excise duty cuts by the government to offset under-recoveries faced by oil marketing companies (OMCs) on petrol and diesel. It also factors in higher subsidies for liquified petroleum gas (LPG).
Elara Securities also pointed out that every additional month of conflict with oil prices near USD 100 per barrel could add around Rs 30000 crore to the Centre's fiscal cost, mainly covering losses of oil marketing companies.
The report added that a prolonged crisis could also lead to second-order economic effects. These include reduced tax collections due to growth shocks, which could further strain government finances.
While the report said that a one-month crisis would be manageable through internal fiscal buffers, a prolonged period of elevated oil prices and geopolitical tensions could increase fiscal risks and potentially lead to a pullback in capital expenditure.
The crude price is trading at USD 100 per barrel at the time of filing this report.
— ANI
Reader Comments
Rs. 30,000 crore extra cost *per month*? 😳 That's money that could have gone to healthcare, education, or infrastructure. The common man is already struggling with inflation. Hope the government has a solid backup plan to cushion the blow for middle-class families.
The report mentions potential cuts in capital expenditure. That's the worst outcome. We need to keep investing in roads, railways, and ports for long-term growth, even during a crisis. Short-term relief shouldn't come at the cost of long-term development.
Living in India for 5 years now. The ripple effect of oil prices here is incredible. It touches every part of daily life. The government's move to absorb OMC losses to protect consumers is commendable, but the fiscal math looks very tight. Tough times ahead.
The Strait of Hormuz is a major chokepoint. This highlights why energy security is national security. We need to diversify our sources and build stronger strategic reserves. Jai Hind! 🇮🇳
My main worry is the LPG subsidy. If that gets squeezed, it's mothers and grandmothers in kitchens across the country who will feel it first. Hope the Ujjwala scheme protections remain strong no matter what.
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