The price of Brent crude saw a 40 per cent fall in Q3 FY19, followed by a 50 per cent rise in the subsequent quarter.
In the first month of FY20, crude oil crossed $75/bbl, raising concerns about the import bill, fear of rise in retail prices, and putting the two deficits, current account deficit and fiscal deficit, at a potential risk.
Chart 1 shows that oil price has been gradually rising since January 2019. However, what can be linked to the general elections, the retail prices are not rising that fast, as Chart 2 reveals. Petrol still costs Rs 73/litre in Delhi, quite less than Rs 76-79/litre when oil was hovering near $75/bbl in the last two instances.
Chart 3 shows that oil imports rose 40 per cent in rupee terms in FY19. About a fourth of it was due to depreciation in the Indian rupee. Further rally in prices could raise import bill. Fuel inflation has started inching up again, shows Chart 4.
Higher oil price also threatens contraction in revenues to states and Centre which had bulged during the low price phase. Chart 5 shows how Centre was a bigger beneficiary of fuel tax revenues.
Low price phase helped not just the government, profits of public oil companies surged as well. However, rising oil prices may compel the government to reduce taxes, and oil companies to reduce refining/ marketing margins, to maintain retail prices as they are, and quell inflation worries.