Table of Contents
BASICS
- Brent crude will be around $100 a barrel in March-April 2019, according to oil price forecasts, roughly the same price band as in MayJune 2014. So, Narendra Modi came to power and will seek re-election with oil@$100.
ONE OF THE PROBLEMS
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- The fuel dispensing units set up at petrol bunks have been at present calibrated for digital display of prices in two digits with two decimal figures and can display a maximum price of Rs 99.99.
- With this, if the price of the fuel touches Rs 100.00, the DU displays Rs 0.00 and the vendor has to collect the additional Rs 100 from consumer manually.
BASICS
What oil@$100 can mean for India has changed dramatically. Effective rate of domestic taxation on fuel used be less than 45% under Congress. It’s over 100% now. Modi sharply raised taxes on fuel and truly decontrolled retail fuel prices.
NOTES
Between the 2013-14 and 2018-19 Budgets, oil subsidies fell 62% The contribution of oil tax revenues to total indirect tax collections has been continuously increasing in Modi’s term, from 27.3% in 2014-15 to 29.3% in 2017-18.
MODINOMICS
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- Free fuel prices, reduce oil subsidies, put high taxes on fuel, use the revenue to spend more on key welfare projects, as well as on higher food subsidies, and yet keep social sector expenditure down and repair the fisc.
- Better targeting of welfare expenditure, through the Aadhaar platform
MODINOMICS IS AN OIL-TO-WELFARE STORY
But can this survive oil@$100? Petrol may retail at Rs 100 a litre as elections loom. Oil@$100 and oil@Rs 100
TROUBLE AHEAD
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- Budget numbers for 2018-19 were calculated on the basis of oil@$65, and rupee at around 66 to the dollar.
- Those calculations are now bust. Oil subsidies, budgeted at just under Rs 25,000 crore for 2018- 19, may end up 40% higher or more in actual expenditure.
NOTES
- These subsides include those on LPG, the fuel at the heart of Modi’s Ujjwala welfare scheme.
- Expenditure on another big welfare plan, the justlaunched Ayushman Bharat, seems open-ended. Food subsidies, as we noted, are increasing. There will more expenditure on account of higher support prices for farmers.
MIDDLE CLASS WILL FEEL THE HEAT?
- A Rs 1 cut in the Centre’s excise tax on fuel means a revenue loss of around Rs 13,000 crore.
- So, an apparently politically dramatic Rs 5 cut in fuel tax will mean a revenue loss of around Rs 65,000 cr, which will totally upend the subsidy and the general budget.
OPTIONS AHEAD
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