A spike in global oil prices, fuelled by the heightened tensions between Russia and the West over Ukraine, could drive up India’s already-elevated wholesale price inflation with spill-over effects on the retail level and bring back fears of a large current account deficit (CAD).
Since brent takes several other commodities, including natural gas and urea, in its stride, the government’s revenue expenditure in FY23 could also turn out to be significantly higher than the budgeted level if oil prices beat the relevant Budget estimate through the year (Economic Survey saw Indian basket of crude to hover around $70-75/barrel through FY23). This is primarily because of a potential big jump in the subsidy on fertiliser from the budgeted level of Rs 1.05 lakh crore, even as decontrol of auto fuels have brought down oil subsidy to modest levels.
