Government to announce long-term solution to oil prices shortly, says DEA Subhash Garg

CNBC-TV18

The central government is all set to announce a long-term solution to the oil price crisis, said Department of Economic Affairs secretary Shubhash Chandra Garg.

Oil companies currently follow a formula that uses a 15-day average to set prices.

The application of the new formula will take time as oil prices have softened only over that last two days, and the lower prices will be factored in once they enter the 15-day period Garg said.

Fuel prices are thus expected to fall a little as lower prices pull the 15-day average down, and is expected to be reflected over the next two to three days, Garg added.

The government, which had said it is looking at long-term solutions to the price hikes, is currently studying how oil prices are likely to behave to finalise a solution and is expected to come out with a plan for the long term.

Garg said some elements of the centre's fiscal calculations have already been factored into the solution being planned, and that the excise duty on fuel is fixed and does not move with global oil prices.

He, however, pointed to state government's and said there might be a case for them to cut duties on fuel, as the states levy taxes on fuel ad vlorem, that is, the duty imposed is proportionate to the estimated value of the goods.

It would not be right to say that the centre had seen a "fiscal bonanza" due to the rise in global crude prices, he added.

Garg further added that the centre would have to find other ways of financing the expenditures that the current duties on fuels were supporting.

The government's import bill rises by between $1-$1.5 billion for ever $1 increase in the oil bill for the year, and so the government cannot reach a hurried decision on a plan to tackle the rising prices, he said and added that consultations were going on with stakeholders.

The DEA secretary estimated the economy to grow between 7.3-7.5% for the current quarter and said growth for the fiscal year 2017-18 was expected at about 6.7%

RBI Lending policy 

The central bank would look to stabilise the rupee and weed out volatility in the currency market, Garg said and added the RBI was not working with any set target for the rupee.

Speaking about the bond subscription rates Garg said subscription over the last two auctions had been good with the bid-to-cover ratio averaging between three and four times the bond value, meaning bids worth between three and four times that value of the bond had been received.

He added that yields have peaked and have started moderating visibly and with a healthy bond subscription, worries about banks not participating had receded.

However, he added that if oil prices declined and the rupee appreciated, a moderation in bond yields could be expected and that a reversal of negative flows will lead to further moderation in bond yields.

Position of the Finance Ministry

Garg said it was fair to expect steady revenue receipts of over Rs 1,00,000  crore over the next few months, and that the finance ministry was "reasonably confident" about achieving GST targets for the current financial year.

He further added that no final call had been taken on the final amount needed for the bank recapitalisation, or how it would be funded, but added that the ministry would like to manage the recap within the budget currently agreed upon.

The government was committed to ensuring that public sector banks had sufficient capital and that the process of achieving sufficient capital of the banks was still being discussed, Garg said.