Oil alarm: Country’s oil import bill at 67% of FY21 in just 5 months of FY22

New Delhi, Oct. 17 (IANS): The sharp economic recovery and rising demand post the second wave of Covid coupled with a spike in global oil prices may pose a challenge for the government in FY22 to maintain fiscal discipline amid good growth in tax revenue.

Country’s crude oil Import bill that fell drastically last year in the absence of demand and soft oil prices, has risen by over 138 per cent in April-August of FY22 to USD 42 billion, up from close to USD 18 billion the same period of last year.

During the period, crude has jumped by about 40 percent from USD 60 a barrel to more than USD 85 a barrel now. This price pressure has come when demand for petroleum products is on a rise in the country already reaching pre-Covid levels and rising.

All this has meant that India is not only importing more to meet additional demand, but is doing it at premium prices ballooning its import bill.

In the April-August period of the current year, India imported 83.8 million tonnes of crude, up from 74 million tonnes of imports in the same period last year. In the month of August, India imported 17.4 million tonnes of crude by paying USD 9.1 billion. This is higher than 16.9 million tonnes of imports at USD 5.5 billion last year in August.

Interestingly, India’s oil Import bill stood at USD 62.7 billion in FY21. This number may well be broken in the first six months of the current fiscal indicating a big jump in oil import bill is coming.

India imports close to 85 percent of its domestic oil needs and any spike in prices has a destabilising impact on its finances. Government is targeting a fiscal deficit of 6.8 per cent of GDP for FY22. This would be a challenge if oil prices keep moving up and demand keeps rising in the country.

No additional borrowing by Centre to meet GST compensation of states in FY22 (inside the box)

The Centre will stick to its borrowing programme for FY22 and will not tap the market for more funds to meet the GST compensation shortfall for states.

Government officials said the current revenue position, where both direct and indirect tax kitty of the government had seen a sharp rise, will prevent it from additional borrowing even if it meets full GST compensation shortfall for states during FY22.

The centre has pegged its gross borrowing target for FY22 at INR 12.5 lakh crore in the Union Budget 2021-22, presented by Finance minister Nirmala Sitharaman earlier in February. Out of this, the effective borrowing in H1 of FY 2021-22 was INR 7.02 lakh crore.

The government now plans to borrow the balance INR 5.03 lakh crore in the second half year (H2) of FY 2021-22 without looking for additional borrowing to meet GST obligation.

With regard to GST compensation shortfall, the government estimated that it would be INR 1.59 lakh crore after paying states from the collections made through HST compensation cess in FY22. Out of this, an amount of INR 1,15,000 crore has already been paid to states in two tranches from regular borrowings of the Centre. Now, it proposes to meet the balance INR 44,000 crore through its already planned fund mobilisation exercise without disturbing the borrowing calendar.

“This is a good development that would keep the Centre’s finances starting and deficit under check,” said a tax expert not wanting to be named.

The Centre has estimated a fiscal deficit at 6.8 per cent of GDP in FY22. Any additional obligation or expenditure would have disturbed the equilibrium required to meet the target.

The Center’s gross tax revenues in 5MFY22 grew 70 percent while the net tax collections growth crossed the 100 per cent-mark yet again, surging by 127 percent (largely reflecting a sharp surge in customs and excise duty receipts). The net tax collection was at 42 percent of FY2022BE, improving further from 34 per cent of FY2022BE in July. Meanwhile, the pick-up in total expenditure remained weak, but registered positive growth in 5MFY22 at 2.3 percent (-) 4.7 percent in 4MFY22 led by 28 per cent growth in capital expenditure while revenue expenditure dropped to (-) 1 percent.

On the indirect tax front as well the going has been good. The gross GST revenue collected in the month of September 2021 stood at INR 1,17,010 crore, a growth of 23 percent over the same month last year.

Now the required run-rate is INR 1.18 lakh crore for the rest of FY2022 to meet the Budget estimates for GST. This, with economic recovery in progress, should not pose much of a challenge.