New Delhi, March 16: India possesses a sufficient tax buffer to handle rising crude oil prices. The government can maintain retail fuel prices at around $110 per barrel by reducing excise duties on petrol by ₹19.9 per liter and on diesel by ₹15.8 per liter, according to a report released on Monday.
The report from Elara Capital indicates that retail petrol and diesel prices can be effectively controlled through excise duty cuts, but any increase beyond $110 per barrel will inevitably shift the burden from the government to consumers.
It is estimated that India can absorb a rise in crude oil prices by $40-45 through taxation. However, prices exceeding $110 per barrel will lead to increased costs for consumers.
A $10 increase in crude oil prices per barrel would result in a decline of ₹6.3 per liter in the margins for oil marketing companies for diesel and gasoline, while LPG prices could rise by ₹10.2 per kilogram.
The report further states that this situation could lead to an annual under-recovery of approximately ₹328 billion for LPG.
Additionally, it mentions that a $10 increase in crude oil prices could boost the gross refining margin for oil marketing companies by about $5 per barrel, but this would not fully compensate for their marketing and LPG-related losses.
If the current Brent crude oil price is $100 per barrel, a lack of retail price increases, tax cuts, or increased LPG subsidies could result in a significant income drop of 90-190%.
Due to a higher refining share, IOC and OMC companies are in a better position, but they still face risks if crude oil prices remain high without any changes in retail prices.
The report also highlights that two-thirds of India’s LNG imports transit through the Hormuz Strait, increasing the risk to gas supply.
Leave a Comment