With low crude oil prices, India's current account deficit remained in the range of 0.7-1.7 per cent in the past four years.
ET Intelligence Group: Surging crude oil prices may dent India's relative attractiveness in the emerging market (EM) universe. In the past three years, several EM fund managers increased allocations to 'resources consuming' nations from 'resources' exporters after crude oil slumped to less than $40 a barrel. However, this could reverse if crude oil continues to sustain above $65 per barrel, with proceeds from energy sales triggering another round of income redistribution.
Japanese broker Nomura, in a note on 'EM differentiation' linked to oil prices, said a sustained rise in energy costs will hurt India, the Philippines and Turkey, while the winners will be Colombia, Malaysia, Nigeria, Russia and Saudi Arabia. India has 8.3 per cent weight in the MSCI EM Index, and foreign funds are overweight on India by 100-150 basis points compared with the benchmark weight. The flow of ETF in Indian equities could be subdued as overseas funds invest in countries based on macro-calls instead of the bottom-up approach.
India imports about three-fourths of its crude oil needs. According to economists, every $10 upward movement in crude oil hits India's GDP growth by 0.10-0.15 per cent, widens current account deficit by 0.4 per cent and adds 30-35 basis points to headline inflation.
With low crude oil prices, India's current account deficit remained in the range of 0.7-1.7 per cent in the past four years. The real worry for the Street will be the likely hit on government revenues if New Delhi has to lower excise duty on motor fuels to restrain inflation. Every Rs 1 cut per litre in excise on petrol and diesel results in government revenue declining by Rs 12,000-13,000 crore. Besides, higher crude oil prices mean bigger petroleum subsidy. The government had earmarked ?25,000 crore as kerosene and LPG subsidies in the FY18 budget.
