There are clear signs that crude oil prices are firming up again, and escalating tensions over Iran imply a rise in geopolitical risks to supplies. Leading oil cartel Opec is also controlling supply to keep prices firm.
For India, reeling under high inflation due to supply constraints, this means more pressure of the same kind.
The price of our basket of crude purchases is up from $49 a barrel in January to over $60 now. While global prices were lower, India cut retail prices twice this year. The “political sensitivity” of a hike makes it tough to reverse the moves. The populist approach comes at the cost of oil marketing companies, which bear higher under-recoveries. To help them, the government lands up issuing oil bonds, as it did recently. These bonds are not even shown fully in the fiscal deficit and reflect bad fiscal management. The ideal option is to let market prices prevail. And the pragmatic one is to cut excise duties further as there’s scope on that front, still.