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In the view of sustained rise in international crude oil prices, the government yesterday announced changes to the prices of petroleum products as well changes to indirect tax structure (See: Petrol prices go up by Rs5, diesel up Rs3; LPG to cost Rs50 more per cylinder). CRISIL has estimated the impact of these revisions on the headline inflation and fiscal scenario for 2008-09. As a result of increased burden of oil bonds, government's off-budget liabilities would increase to 1.80 per cent of GDP as shown in table 1. | Table 1: Impact of oil pricing on fiscal situation | | 2007-08 | 2008-09 (E) | | average crude oil price (US$ per barrel) | $79 | $130 | | Under-recovery of OMCs (Rs billion) | 773.0 | 2453.1 | | Proposed Funding (Rs billion) | | | | Oil bonds | 203.3 | 946.0 | | Contribution of upstream oil companies | 158.7 | 600.0 | | Recoveries due to price hike and excise duty reduction | | 382 | | Fiscal deficit (Rs billion) | 1436.5 | 1552.9 | | Fiscal deficit to GDP | 3.10 | 2.90 | | Understatement of deficit due to oil bonds (% of GDP) | 0.47 | 1.80 | | Source: CRISIL estimates | Inflation is expected to increase by 95 basis points on account of direct and indirect effects. | Table 2: Incremental impact on headline inflation (bps) | | Basis points | | Direct Impact | | | Rs 5/ltr hike petrol | 9 | | Rs 3/ltr hike diesel | 11 | | Rs 50 hike in LPG cylinder | 31 | | Indirect Impact | 44 | | Total | 95 | | Source: CRISIL estimates | In addition to its impact on fiscal, the revision of petrol, diesel and LPG prices, with push up inflation by 95 basis points taking into account direct and indirect impact. Out of this, the direct impact will be 51 basis points with the highest contribution coming from the hike in the LPG price hike. The indirect impact, which will felt over the course of next few months, will be 44 basis points. Highlights - Petrol price hiked by Rs 5 per litre
- Diesel price hiked by Rs 3 per litre
- LPG cylinder to cost Rs 50 more
- Kerosene prices remain unchanged.
- Customs duty on crude, diesel & petrol, other petroleum products reduced to nil, 2.5 and 5.0 per cent respectively.
- Excise duty reduced by Rs 1 on petrol and diesel.
Impact - The direct impact on headline inflation of between 51 basis points
- The total impact (direct + indirect) on inflation to amount to 95 basis points
- The under-recoveries of the OMCs expected at Rs 2453 billion with oil price at around $ 130/barrel
- The government to issue the oil bonds worth Rs 946 billion in 2008-09
- Revenue loss of Rs 220 billion expected as a result of reduction in customs and excise duty
- The oil marketing companies are expected to gain Rs 382 billion due to the price hikes and excise duty reduction
- The refining companies are expected to gain Rs 120 billion from customs duty reduction
- Under-statement of fiscal deficit estimated on account of off-budget liabilities on oil at
1.80 percentage points of GDP
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