Rising prices of crude oil worrying for industries

The government may come under pressure to reduce the petroleum tax to curb inflation

Rising crude oil prices have crossed $ 50 a barrel and high inflation rates have become a matter of concern for the country's policymakers and industries. Rising crude oil prices will put pressure on the country's fiscal deficit. The country's fiscal position is already under severe stress due to Corona.

Brent crude rose 18% to $ 50 a barrel yesterday. Barclays estimates that a $ 10 increase in crude oil prices would increase its retail price in the country by Rs 5.80 per liter. This adds up to 34 basis points to inflation over the next 3 to 6 months. Unless the government changes the tax on petrol.

To control the rising prices of petrol and diesel, the tax on them has been increased to Rs. A reduction of 5.80 could have an impact on government revenue. According to Barclays estimates, the decline could be as high as Rs 872 billion or 0.39% of the country's GDP estimate.

High crude oil prices increase inflation so taxes on fuel remain a major problem for the government.

According to an estimate, the share of petroleum tax in the total revenue through government tax may increase to 25% in the current financial year. This share has been increasing since 2014.

Because of rising crude oil prices, the government is considering giving some concessions to the Reserve Bank in its inflation target. It is currently the responsibility of the Reserve Bank to keep retail inflation at 4% with 2% plus-minus. But currently, retail inflation is seen above 7%.

Rising crude oil prices could push up industry production costs as the country's industries are barely recovering from the economic impact of the corona, an analyst said.