The crude oil prices HAVE been INCREASING consistently over the LAST few months In ADDITION, the rupee HAS ALSO been DEPRECIATING RATHER RAPIDLY. Both these FACTORS thus pose A double WHAMMY THREAT for fuel INFLATION in
INDIA. The crude oil prices of the INDIAN BASKET ARE GENERALLY found to be lower THAN the Brent prices given the mix in the
import BASKET. In this study, we HAVE SPECIFICALLY ASSESSED the TRANSMISSION of the crude prices in VARIOUS sub-
components of WHOLESALE price index AND consumer price index INFLATION.

The PERCOLATION of the INCREASE in crude oil prices in the INDIAN economy HAS been ASSESSED in this study. While the INCREASE in CRUDE prices tends to AFFECT the fuel prices in INDIA, the DEPRECIATION of the rupee AGAINST the US DOLLAR ALSO exerts pressure on these prices. Thus, there is A twofold IMPACT on domestic INFLATION PERTAINING to fuel prices AS well AS HEADLINE INFLATION.

Impact of Falling Rupee on Crude Oil Prices
Brent crude oil prices HAVE risen by 22.5% in Oct'18 over MARCH'18 from $66.72 per BARREL to $81.74 per BARREL in MARCH'18. The Rupee HAS DEPRECIATED by 13.2% in October'18 over MARCH'18 – from Rs. 65.04/$ in MARCH'18 to Rs. 73.66/$ in October'18.

INDIAN crude oil BASKET HAS witnessed lower crude oil prices THAN the Brent crude. For INSTANCE, in October'18, when the Brent prices were $ 81.74 per BARREL, the INDIAN crude oil BASKET stood AT $77.38 per BARREL AS per PPAC. Over MARCH'18, however, the crude oil prices of INDIAN BASKET HAVE INCREASED by 21.4% in October'18.

Average Rupee Price of crude oil (per barrel) (Brent in Rs)
The rise in crude oil prices in terms of rupee CAN ALSO be PARTIALLY ATTRIBUTED to WEAKNESS in the rupee during this period
The PRINCIPAL REPAYMENT of the ECBs during the LAST four YEARS (FY15-FY18) HAVE been RANGE bound AROUND USD 25 Bn. If one ASSUMES THAT the SAME AMOUNT is going to be REPAID by the CORPORATES during the current FINANCIAL YEAR (FY19), the effect of the DEPRECIATING INDIAN rupee on REPAYMENT of the PRINCIPAL AMOUNT is to the tune of Rs. 22,500 crs.

The fuel AND power CATEGORY in WPI HAS registered INFLATION AT 9.4% in September'18 over MARCH'18. MINERAL oils, the sub-segment in fuel AND power (comprising LPG, Petrol, Kerosene, AVIATION TERMINAL Fuel (ATF), High speed diesel (HSD), NAPHTHA, Bitumen, FURNACE oil, lube oils, petroleum coke) witnessed INFLATION AT 15.1% in September'18 over MARCH'18. All the sub components in the WPI PERTAINING to fuel (MINERAL oil) CATEGORY HAVE risen AT double digit growth. The INFLATION in LPG WAS CAPPED AS the govt. provides the subsidy. However, other
components HAVE pushed up OVERALL INFLATION in this segment.

On the SIMILAR lines, below CHART plots the CPI BASED INFLATION in September'18 over MARCH'18 in select fuel CATEGORIES. RETAIL INFLATION in fuel AND light for September'18 WAS AT 4.1% over MARCH'18. Within
the fuel components, LPG, Kerosene AND diesel HAVE grown AT A double digit growth THAT led to high INFLATION in the fuel CATEGORY. During the SAME period, petrol for vehicle HAS grown by 11% while diesel for vehicles HAS registered A growth of 15.5% over MARCH'18.

It APPEARS THAT the high INFLATION, both WHOLESALE AND consumer, CAN be ASCRIBED to not only the rise in crude oil prices GLOBALLY but ALSO rupee DEPRECIATION. Going FORWARD, fuel INFLATION might EASE AS the govt. HAS CUT excise duty on petrol AND diesel by Rs. 2.5 per litre AND the excise duty on ATF WAS brought down from 14% to 11% in October'18. Also AS the crude oil prices HAVE STARTED moving SOUTHWARDS AFTER it HAS been INDICATED THAT the supply of
OPEC would INCREASE to COMPENSATE for ANY loss of output from IRAN following SANCTIONS being invoked on November 4 2018, it does APPEAR THAT the price INCREASE SPIRAL HAS been checked.

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