India is expected to save Rs 1.2 lakh crore ($17.6 billion) because of reduced oil prices and increased excise duties.
This is likely to help Finance Minister Arun Jaitley achieve the fiscal deficit (government spending minus earnings) target of Rs 5.56 lakh crore ($81.8 billion), or 3.9% of the gross domestic product (GDP), even with reduced prospects of direct tax revenue.
It will also help the government achieve the current account deficit (imports of goods, services and investment minus exports) target of 1.3% of GDP for the current financial year, which was 1.4% of GDP in the first half, April to September 2015-16.
The Dip in Oil Prices Has Given India an $18 Billion Bonanza
Reduced oil prices would save the government Rs 2.7 lakh crore ($39.7 billion), although falling exports will take away Rs 1.7 lakh crore ($25 billion) – a net gain of Rs 1 lakh crore ($14.7 billion) for the government.
Raised excise duties will earn another Rs 20,000 crore ($3 billion), if the excise collection in December stays the same over the last three months of the fiscal year 2015-16.
This Rs 1.2 lakh crore windfall will pay for raises to 10 million government employees – under the Seventh Pay Commission – and three million ex-servicemen and war widows, as part of the One-Rank-One-Pension demand. The two schemes together demand Rs 1.1 lakh crore from the government exchequer, according to this finance ministry document.
Without the global oil-price drop, Jaitley would have been hard-pressed to find the money to pay for these pay hikes to 13 million soldiers and government employees.
Oil (Brent crude) has dropped to below $30 per barrel, a price last seen in 2004 and during the 2008 financial crisis.
The price of the Indian basket of crude oil (a proportional mix of sour grade Dubai and Oman oil and sweet grade Brent crude oil) has fallen from $110 per barrel in 2013 to $26 per barrel in January 2016.
The current crash in oil prices is due to a steep decline in demand from the developed markets and China while the initial drop from $100 to $60 per barrel was due to a supply glut, said Saugata Bhattacharya, chief economist at Axis Bank, on Sabha TV.
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