As oil prices descend to the levels that last in early 2021, India can stare in an unexpected silver sheath. Brent slipped under $ 61 a barrel, while WTI dropped to $ 57.22 – marking 15%, after Donald Trump revealed his tariff plans.
Investment adviser Gaurav Ainene says time may not be better for India, which imports most of the oil. From the prevention of inflation to the strengthening of foreign exchange reserves, the cruel slide can give the economy a very needed advantage.
With a sharp fall of oil, India strives to gain more economic fronts. Gaurav Ainene, an investment adviser, breaks down how this price can be reduced positively through the economy.
Reduces import account
India imports nearly 85% of crude oil requirements. In FY23, the country imported about 232 million tonnes of crude worth $ 158 billion. AINEIN notes: “The fall of a $ 10 barrel in oil prices could reduce the import account by £ 15 billion a year.”
Improves current account deficit (CAD)
RBI bound CAD to 1.2% of GDP in FY24. AINEIN explains: “Any fall at a cruel level of $ 1/barrel can reduce CAD by $ 1.5-1.6 billion,” strengthening the external sector in India.
Cools inflation
Raw prices affect fuel, fertilizers, transport, plastic and FMCG. In 2022, the rise in oil prices pushed WPI inflation above 12%. Lower oil prices, says AINEIN, “helps cool both the consumer pricing index (CPI) and the Wholesale Price Index (WPI).”
Facilitates fiscal deficit pressure
India’s fiscal deficit for FY25 is directed at 5.1% of GDP. Cheaper raw materials are reduced to fuel and gas fertilizer subsidies. Ainene adds: “This creates room for greater wasting of capital.”
Supports the rupee
In FY22, the rise in oil prices put pressure on the rupee to £ 83 per dollar. “The lower cruel cruel means a reduced bay of the dollar,” says Ainene, who supports exchange rate reserves and currency stability.
Increases consumption
Fuel drop and LPG prices increase income for household availability. This can abolish both rural and urban consumption, helping maintain GDP intensity.
Key sectors of AIDS
Industries such as airlines, logistics, colors, tires and FMCG benefit from cheaper oil. “Aviation fuel forms 40% of the airline’s costs – the fall of ATF directly improves margins,” notes Ainene.
Builds Foreign Exchange Reserves
With reduced oil imports, India can save on the dollar outflow and strengthen its exchange rate reserves – further improving macro stability.
