Finmin to assume oil price at below $50 in Budget

The Finance Ministry likely to peg the notional value of crude oil price below $50 a barrel while computing the subsidy numbers and fiscal deficit in the Budget 2016-17.

This will be much lower than the assumption of crude oil price of $70 a barrel for the Budget for the ongoing financial year, 2015-16.

"The oil prices assumption for 2016-17 Budget will be below $50 as crude oil prices is expected to remain subdued next year as well," official sources said.

"Whether it will be $47, 45 or 42 that's anybody's guess. The exact number will be worked out nearer to Budget," they said. The Budget proposals are slated to be presented to Parliament on February 29. It will take effect from April 1.

The assumption for crude oil price level is essential for working out the fuel subsidy outgo and project the fiscal deficit for the financial year.

As per the revised fiscal consolidation roadmap, the government proposes to bring down fiscal deficit from 3.9 per cent in the current fiscal to 3.5 per cent in 2016-17.

During 2015-16, fuel subsidy projection of Rs 30,000 crore was made assuming crude oil at $70 a barrel.

However, the outgo towards subsidy will be less than the estimate as the price of crude oil in the international market fell to around 12-year low of $33 a barrel.

The crude oil prices may fall further on account of deceleration of growth in major economy especially China and tepid recovery elsewhere.

Falling crude oil price provide additional headroom for government to raise excise duty on petrol and diesel before March with a view to raising more revenue.

Government has already raised excise duty on petrol and diesel, three times in quick succession, which will help it garner an additional Rs 10,000 crore in the fiscal and partly make up for the shortfall in disinvestment receipts and direct tax collections.

Earlier this month, the government hiked excise duty on petrol by Rs 0.37 per litre and by Rs 2 a litre on diesel to mop up a little less than Rs 4,400 crore.

The government has raised excise duty on petrol and diesel 3 times in last two months and by 7 times since November 2014. The three excise duty hikes this fiscal, totalling Rs 2.27 per litre on petrol and Rs 3.47 a litre on diesel.