New Delhi [India], April 7 : The government may face increasing fiscal pressure if rising global crude oil prices are not passed on to consumers, with the potential for a significant impact on the fiscal deficit, said Ranen Banerjee, Partner and Economic Advisory Leader at PwC India.
Speaking to ANI, Banerjee said that the current strategy of holding pump prices despite rising crude costs may become difficult to sustain over time.
"They're holding on to the pump prices of fuel. I think that is a little unsustainable given the situation that we are in. And if that is not passed on very soon to the consumers, then the fiscal deficits will see a significant bump up. And if the fiscal deficits go up, then the choice for the government will be either to continue with a higher fiscal deficit for the year and overshoot its budgeted fiscal deficit, or it may impinge on the capital expenditure allocations that the government has made. So that choice has to be made by the government very soon," he said.
He added that the situation is further complicated by rising fertiliser prices, which could increase subsidy burdens and add additional strain on government finances.
Banerjee noted that the impact of elevated oil prices is already visible across the economy, with higher import costs widening the current account deficit and putting pressure on the rupee due to increased
As the ongoing West Asia conflict enters its sixth week, global crude oil prices have surged sharply from around USD 70 per barrel before the war to currently trading near USD 110 per barrel.
Despite this steep rise, the government has not fully passed on the increase in fuel prices to consumers, keeping retail pump prices relatively stable. However, this has led to significant pressure on oil marketing companies (OMCs), which are bearing the burden of higher input costs.
Looking ahead, Banerjee said that if the conflict ends soon, trade flows could normalise within three to four months. However, oil prices may continue to remain elevated, prolonging cost pressures across sectors.
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