It is not just demonetisation which is threatening the world's fastest growing economy tag of India. A spike in oil prices too may have dampening impact on the growth, the Economic Survey said today.
India did not fully pass on the slump in oil prices in late 2014 and early 2015, resulting in it gaining the dubious distinction of having highest tax on diesel and petrol in all countries outside Europe.
"International oil prices have stopped falling, providing less of an updraft to the economy. So growth would have inevitably differed, even without demonetisation," the pre- Budget Survey tabled in Parliament said.
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Price of basket of crude oil India buys has increased from USD 39.9 in April 2016 to USD 52.7 in December 2016.
It estimated that "oil prices could rise by as much as one-sixth over the 2016-17 level, which could have some dampening impact on the growth."
"Geopolitics could take oil prices up further than forecast. The ability of shale oil production to respond quickly should contain the risks of a sharp increase, but even if prices rose merely to USD 60-65 per barrel the Indian economy would nonetheless be affected by way of reduced consumption; less room for public investment; and lower corporate margins, further denting private investment," it said.
Also, the scope for monetary easing might also narrow, if higher oil prices stoked inflationary pressure.
The Survey projected a growth rate of 6.75-7.5 per cent for 2017-18 fiscal.
It said since June 2014 when international oil prices started declining, India has increased its excise duties from Rs 15.5 per litre to Rs 22.7 per litre as of December for petrol and from Rs 5.8 per litre to Rs 19.7/litre for diesel.
The increase in petrol tax has been over 150 per cent in India, it said, adding the governments of most advanced countries have simply passed on the benefits to consumers.
"As a result, India now outperforms all the countries except those in Europe in terms of tax on petrol and diesel," it said.
Tax on diesel in India at USD 0.38 per litre is higher than USD 0.14 in US, USD 0.28 in China, USD 0.35 in Japan but lower than USD 0.75 in France, USD 0.69 in Germany and USD 0.97 in UK.
Similarly, the USD 0.53 per litre tax on petrol is higher than USD 0.12 of US, USD 0.34 of China, USD 0.29 of Canada but lower than USD 0.92 of France, USD 1.05 of France and USD 0.96 of UK.
Stating that India normally undertakes policy-related
fiscal adjustment only gradually, the Survey said aside from crisis periods, the fiscal position has only improved sustainedly when it has benefitted from windfalls, arising from exceptional growth (as in the mid-2000s) or major declines in oil prices that allow for lower petroleum-related subsidies and higher excise taxes.
"Between 2014-15 and 2016-17, lower oil prices will have contributed about a percentage point to fiscal adjustment," it said.
After remaining fairly stable for much of the last two years, international prices of crude oil have started to trend up.
"This along with rise in the prices of other commodities like coal, etc. Could exert inflationary pressure and have the potential to adversely impact the trade and fiscal balances," it said, adding the recent uptick in global prices pose an upside risk to growth.
The downward spiral in international crude oil prices resulted in a decline in oil import bill by around 18 per cent in the previous two years which together with a sharp decline in gold imports led to a reduction in India's overall imports and current account deficit.
"Since the decline in oil prices from their peak in June 2014 there has been a lift to incomes which combined with government actions imparted dynamism by increasing private consumption and facilitating public investment, shoring up an economy buffeted by the headwinds of weak external demand and poor agricultural production.
"This year that important source of short-term dynamism may be taken away as international oil prices are now on the rise. Moreover, private investment remains weak because of the twin balance sheet problem that has been the economy's festering wound for several years now," the Survey added.
It said the advantage on account of benign international oil prices has receded and is likely to exercise upward pressure on the import bill in the short to medium term.
