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Over the past three years, India—a major importer of crude oil—has benefited from the lower-for-longer oil prices, but now with the price of oil rising and Brent touching the $65 a barrel mark earlier this week, the country’s economic fortunes may be about to turn.
With the lower oil prices, India enjoyed a lower import bill for the crude oil it was buying, and its trade balance and current account deficit improved, The Economic Times said in an analysis on Wednesday.
While the most developed economies simply passed on the benefit of the lower oil prices on to its consumers, India has increased its excise duties on gasoline and diesel, and local consumers have felt few of those benefits.
Now India faces a fiscal dilemma at home with the higher oil prices, according to The Economic Times. If excise duties remain unchanged with the higher oil prices, consumers may have to pay more for the oil products. On the other hand, if excise duties are reduced, petroleum companies and oil refiners will not be able to fully benefit from the recovery of the oil industry.
India is heavily dependent on crude oil imports, and in the 2016-17 fiscal year, a total of 82.1 percent of the country’s oil consumption was met by imports. India’s biggest trade partner in energy imports is OPEC—some 85 percent of crude oil imports and 94 percent of gas imports come from OPEC member states, according to The Economic Times.
India’s Prime Minister Narendra Modi has vowed to cut the country’s oil import dependence by 10 percent by 2022, but some analysts think that he will be unable to reach that target.
According to government data, India’s oil import bill is rising together with oil prices. In October 2017 the value of oil imports was 28 percent higher than in October 2016, with Brent prices rising 16 percent year on year.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.