Direct share of crude oil related products in WPI basket is around 9.3%. Thus a 10% increase in crude oil would lead to increase in WPI by 0.9 percent. Bank of Baroda’s baseline forecast for wholesale price Index ( WPI) is 11.5-12% for FY’22 and 6 per cent for FY’23, which might increase by around 0.9-1 per cent because of increase in crude prices.
The share of oil in consumer price index (CPI) is around 4.4 percent. So a 10% increase in crude oil would push up CPI by 0.4-0.6 per cent. The bank expects CPI in FY’23 it is likely to be 5-5.5%. India is the world’s third largest importer of crude oil.
Higher crude price will mean higher revenue for the states under unchanged excise duty conditions. But the subsidy on LPG and kerosene will increase thereby pushing up the subsidy too, though this may not be very significant.
India imports about 84% of its oil requirement. Oil imports accounted for ~27% of India’s total imports in FY’19 and FY’20. However, in FY’ 21, the share of oil imports in total imports dipped to 21 percent. This was on account of lower demand due to Covid-19, as well as lower oil prices. While oil averaged $ 71/bbl in FY’20, it averaged only $ 45.8/bbl in FY’21. In FY’22, the share of oil imports in India’s total imports has increased to 25.8% (Apr-Dec’21) as oil prices inched up.
“With oil prices on an uptrend again, the oil import bill is likely to swell further. This will have an impact on India’s external position ” said economists Dipanwita Majumdar and Aditi Gupta. “We estimate that a 10% hike in oil prices lead to an increase of India’s CAD by $ 15bn or 0.4% of GDP. This will have a negative impact on the rupee”.