Softening crude prices to help meet fiscal deficit target

The falling crude prices is definitely a good news, says Finance Ministry official

Moderating crude oil prices in the international market will help the government in meeting the current year's fiscal deficit target of 4.1% of GDP which was earlier described as a 'very difficult task' by Finance Minister Arun Jaitley.

The international crude oil prices have a bearing on government finances as it increases the subsidy bill on kerosene, diesel, fertiliser and LPG. India imports about 80% of its oil requirements. The imports had totalled $168 billion last fiscal.

"The falling crude prices is definitely a good news. It should help us in managing our fiscal deficit within in the overall target," a senior Finance Ministry official said.

After assuming power in May, the new government had retained the fiscal deficit target of 4.1% GDP for 2014-15 fixed by the UPA government. At that time it was assumed that international crude prices would range between $105-110 a barrel.

The crude oil price for Indian basket, however, has dropped to $95.35 per barrel on September 19 from $105.3 per barrel in end March 2014.

While falling crude oil prices are a help to government, there are concerns on the tax collection front. However, officials said if the uptick in the GDP continues as seen in the first quarter, revenue mop would also go up.

Lower crude oil prices will also help in further containing the Current Account Deficit (CAD) that has narrowed to 1.7% of GDP in the April-June quarter of this fiscal.

The CAD, which is the difference between the inflow and outflow of foreign currency, had touched a record high of $87.8 billion (4.8%) in 2012-13. It, however came down to $32.4 billion (1.7%) in 2013-14.

On the fiscal deficit target, Jaitley in his Budget speech had said: "My predecessor (P Chidambaram) has set up a very difficult task of reducing fiscal deficit to 4.1% of the GDP in the current year... Difficult, as it may appear, I have decided to accept this target as a challenge.".