Big relief for Modi govt from oil prices now!

Modi government has just got some much needed relief as far as the economy is concerned. Lower global crude oil prices are expected to contain the rise in India`s current account deficit (CAD) to 2.6 per cent of the gross domestic product (GDP) in 2018-19, a SBI Ecowrap report said on Thursday. The current account is the net difference between inflows and outflows of foreign currencies.

In 2017-18, India`s CAD had widened to 1.9 per cent of the GDP from 0.6 per cent in 2016-17. The current fiscal`s CAD is expected to reach 2.8 per cent.

"The recent decline in oil prices might compress the CAD by around $5 bn-$6 bn from our estimates of $78 bn in current fiscal. This will imply CAD settling down at 2.6 per cent of GDP (previously 2.8 per cent). Additionally, if crude averages $65 and rupee stays at 70, then petrol and diesel prices could fall further on average by Rs 4 or more," the report said.

"This implies that diesel prices could head well below Rs 70 per litre and petrol well below Rs 75. It is thus imperative that we also keep exchange rate stable. Inflation is likely to hit 2.7-2.8 per cent in the next couple of months."

According to the report, for the second year in succession, direct tax collections are likely to be higher than the budgeted targets by at least around Rs 20,000 crore.

"There will also be an additional Rs 14,000 crore surplus tax collections under customs duty. In addition to this, the government is expected to add another Rs 20,000 crore to its kitty from evaded taxes," the report said.

However, the report said that there might be a shortfall of around Rs 90,000 crore in GST and excise collections, out of which Rs 10,500 crore is on account of reduction of excise duty on petroleum products by Rs 1.50 per litre.

"We, however, expect that customs collections will overshot the budgeted amount by Rs 14,000 crore," the report added.