Rising petrol and diesel prices could impact Inflation and CAD: Angel Broking

Views of Mr. Jaikishan J Parmar (Research Analyst, Angel Broking):

"The oil marketing companies raised prices of petrol again on April 2nd taking the prices of petrol to a 4 year high. Delhi, which enjoys the lowest petrol and diesel among metros, has not seen current high levels since September 2013.

Domestic oil prices are impacted by 3 factors viz global crude prices, exchange rate and domestic taxes. Brent crude has crossed $70/bbl and that is putting pressure on domestic prices. Between Nov 2014 and Jan 2016 the Finance minister had raised the excise duty on 9 occasions to slice part of the lower crude prices. However there was only 1 cut in excise duty in october 2017. Since petrol and diesel are not covered by GST, most states have also not reduced the rates of VAT. That has also put pressure on prices.

For India there are serious macro implications. The CAD has already touched 2% of GDP for Dec quarter and it could get worse in the March quarter. That could be negative for sovereign ratings and for the INR. But the more immediate impact could be on CPI inflation which could go back above the 5% mark. In fact markets are already worried that higher crude could compel downstream oilcos to bear part of the subsidy burden."

Source : Equity Bulls

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