Crude oil prices have reached $130 a barrel amid the crisis in Ukraine and Russia and sanctions on Russia from the West. This is not a good position at all for India, which is heavily dependent on crude oil exports. With crude oil becoming expensive, not only will India's import bill increase, but there will also be a trickle-down effect on goods and services. Similarly, if the Center reduces the excise duty on oil, then the revenue from the tax will also be affected.
India's forex reserve will also be affected by the prices of expensive crude oil, in 10 major economies, the total import of oil in India is 32%, which is much higher than other economies, so its impact on India will be more visible.
Due to the cost of oil, the importers of India will buy the same quantity of oil for more dollars. This will reduce India's foreign exchange and create a buffer against external shock and thus further depreciate the value of Indian Rupee. On 7 March 2022, 1 dollar was equal to 77 rupees, as well as there was a decline in India's foreign exchange, where the total foreign exchange was $ 642 billion in October 2021, it has come to $ 632 billion in February 2022 and still some Similar situation prevails.
The last time when crude oil prices reached near $100, India's forex remained stable but the rupee also fell 35% against the dollar. On the other hand, oil prices remained low between March 2014 and March 2021, forex reserves also increased by 90% and the rupee fell by 19% against the dollar.
Domestic consumers have also experienced the impact of rising crude oil prices, for example, a 5% jump in milk prices amid a rise in the price of this oil. In the midst of this crisis, the Wholesale Price Index has also increased by 20% between March 2022 and February 2022, while those that depend on oil and energy have increased by 40%.
Between 2011 and 2014, petroleum was heavily subsidized in India. 2012-13 India's total petroleum subsidy payments had come down to ₹1.64 trillion. To protect the customers, the government was providing subsidies and this subsidy was being funded by the government through oil bonds, the total cost of which was ₹ 1.34 trillion.
However, the subsidy on petrol and diesel was removed from 2014. In the midst of this rising crude oil prices, the government hardly starts the subsidy system again and in the deregulated market, the burden of rising prices is often passed on to the customers, due to which there is a significant increase in retail inflation.
Since 2014-15, the BJP government has clearly benefited from oil as it has been levying a lot of customs and excise duty on it. The government earned a total of ₹4.6 trillion from taxes on oil in 2021, which is 36% more than in 2019 and 300% more than in 2013-14.
Due to this, the fiscal deficit has been under control, due to expensive crude oil, there will be pressure on the center to keep inflation under control but this will also affect their revenue and if the government has less revenue then it will mean that the government Will also reduce the cost.