Home / Economy / Oil price hike poses huge challenge: FM

NEW DELHI : Finance Minister Nirmala Sitharaman on Tuesday said that the "unprecedented" hike in oil prices is a major challenge.

She was speaking during the discussion on the Appropriation Bill and the Finance Bill in Rajya Sabha. Parliament on Tuesday passed the Union Budget for FY23 as Rajya Sabha returned the Appropriation Bill 2022 and the Finance Bill 2022.

The statement comes at a time when retail fuel prices are being increased on a daily basis on the back of the high crude prices. Since the Russian invasion of Ukraine in March, oil prices have soared to multi-year highs. High oil prices raise concerns of an increase in inflation and current account deficit, which may eventually hit the economic growth of the country.

Speaking on the continuous rise in retail fuel prices, the minister reiterated the government's stand that consumers are paying taxes to pay off for the oil bonds floated by the UPA government, which have added to the retail prices.

Petrol and diesel prices in the country have already increased around 5 after oil marketing companies resumed the daily revision of retail prices on March 22, which has brough about a lot of ire for the government from the opposition during the ongoing parliament session.

Sitharaman, however, said that the macroeconomic estimates pegged for the Union Budget FY23 were projected keeping in view the whole year and are not reviewed on frequently.

Concerns have been looming large over the impact of high global oil prices on the economy and the eventually dent on the GDP and fiscal deficit estimates as India imports around 85% of its energy requirements. The GDP estimate for FY23 according to the Economic Survey for FY22 is 8-8.5%. 

The spike in oil prices is expected impact the budget arithmetic for the upcoming fiscal as the estimates were made in this year's budget with the estimated crude price for FY23 pegged at $70-75 per barrel, which is way lower than the current prices.

Further, as per the budget the fiscal deficit in 2022-23 is estimated at 6.4 per cent of GDP.

Already, several brokerage houses have reduced their growth estimates for the country anticipating fallout of the current geopolitical crisis. Domestic ratings agency ICRA on Tuesday cut its FY23 real GDP growth estimate by a sharp 0.8 per cent to 7.2 per cent.

Addressing the Rajya Sabha, Sitharaman said that the Russia-Ukraine conflict is impacting all countries as was the case with the pandemic.

She also said that the government is conscious of balancing emphasis on growth and economic recovery and inflation. Concerns over a slowdown to the recovery have come up also because inflation rate in India has been high off late, above the tolerance level of 6% set by the Reserve Bank of India. Consumer price index which reflects the retail inflation stood at 6.07% in February.

Outlining economic data to show growth under the NDA government, Sitharaman on Tuesday said that FDI flow into the country over the past eight years has been $500.5 billion, which is 65 per cent more than the amount received in the 10 years of the UPA government, as investors have trusted the economic management of the current regime.

Citing a report by the United Nations Conference on Trade and Development (UNCTAD), she further said that India continues to remain among the top five foreign direct investment recipient countries in the world.

She also said that even amid the pandemic, the Indian government did not resort to taxes for resource mobilisation and no tax was increased to fund the economic recovery as in the case of several other countries.

The finance minister also said 8.35 lakh crore has been devolved to states from central taxes in the current fiscal, higher than the revised estimate of 7.45 lakh crore for 2021-22.

ABOUT THE AUTHOR

Rituraj Baruah

Rituraj Baruah is a senior correspondent at Mint, reporting on housing, urban affairs, small businesses and energy. He has reported on diverse sectors over the last six years including, commodities and stocks market, insolvency and real estate. He has previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.
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