Global crude oil prices were ruling at four-year lows, raising hopes of another cut in the pump prices of petrol and diesel and a lower subsidy bill for the government.
Brent crude oil prices, taken as the benchmark by India for its oil imports, fell by $1.11 to $81.23 per barrel on Tuesday, its lowest since October 2010.
Oil companies had reduced petrol and diesel prices by Rs 2.41 and Rs 2.25 a litre respectively on October 31, when the Indian basket was hovering around $84.77 a barrel. Now, petrol and diesel prices could come down by another Rs 1 to 1.50 per litre.
A revision in fuel prices is due on Saturday. Officials at Indian Oil Corporation (IOC), the country’s largest fuel retailing firm, said they were “closely monitoring” the international prices. Changes in the foreign exchange rate and trends in the global market will be reflected in price changes, they said.
India imports two-thirds of its energy needs. Lower diesel prices bring down the cost of transporting goods and help keep inflation low. This could in turn prompt the Reserve Bank of India to cut interest rates and eventually bring down installments on home and auto loans.
Softer crude prices also help reduce fuel subsidies and contain the fiscal deficit — the amount the government borrows to fund its expenses — at the budgeted level of 4.1% of GDP for 2014-15.
With every dollar decrease in oil prices, the government’s oil import bill comes down by Rs 4,000 crore. A $2-4 per barrel reduction in crude oil prices would lower India’s oil import bill by Rs 8,000-16,000 crore. Oil imports cost India $145 billion a year.