SBI’s economic report on oil price hike, impact on CAD released

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New Delhi: The Economic Research Department of State Bank of India (SBI) has released a report on oil price hike and how unlikely it is to impact the Current account deficit (CAD) and how inflation could stretch fiscal.

The report is authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser of SBI.

“We believe the Government is walking a very delicate balance between managing fiscal deficit amidst slowing revenue. The only silver lining is the Government has mobilised small savings worth Rs 54,404 crores during the first six months of this fiscal,” the economic report said.

The report further said that with this rate and assuming oil price tapers down to reasonable levels, the Government could thus receive budgeted Rs 1 lakh crore in small savings in FY18, and thus would be able to do a buyback of Rs 75000 crore.

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“This in turn implies that the Government would be able to meet its net market borrowing target of Rs 3.48 lakh crore in FY18, a huge positive for bond markets,” said the report.

“Brent crude crossed 62 dollars (Rs. 4028.76) a barrel recently primarily due to OPEC-led output cuts. OPEC and some non-OPEC producers including Russia have pledged to curb their production by around 1.8 million barrels per day (bpd) until the end of March to drain a global supply glut,” said the report.

The report stated that there are various transmission mechanisms through which they can trace the impact of decrease (or increase) of oil prices on Indian economy.

“On an average India has imported 4.27 million bbl worth of crude oil in H1 FY18. This translates into a whopping 1561 million bbl oil imports per year,” the report asserted.

It further said that an average annual one dollar increase in oil price can lead to an increase in oil imports by 1561 million dollars annually.

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