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Crude at 47-month low, good news for economy

business Updated: Oct 16, 2014 00:04 IST
HT Correspondent
HT Correspondent
Hindustan Times
crude oil

Global crude oil prices fell to a four-year low of $84 a barrel on Wednesday, raising prospects of further cuts in retail fuel prices besides bolstering the government’s plans to tame inflation and cut subsidies.

India imports two-thirds of its energy needs, making oil prices a key factor for inflation.

On Tuesday, oil companies cut petrol prices by Rs 1 a litre and a cut in diesel rates — the first in over five years — is expected in the next few days. Lower diesel prices will cut down cost of ferrying goods and help keep inflation low and stable.

India’s wholesale inflation rate plunged to 2.38% in September, the lowest in five years, while retail inflation fell to 6.46%, the lowest since 2012, aided by a sharp drop in vegetable and petrol prices, rekindling hopes that the RBI will cut interest rates soon and prompt banks to lower home loan EMIs.

Besides, softer crude prices will help curtail fuel subsidies and contain the fiscal deficit — a measure of the amount the government borrows to fund its expenses — at the budgeted level of 4.1% of the GDP in 2014-15.

The fiscal deficit target was set on the assumption of an average crude oil price of $105 a barrel, more than $20 a barrel than the current price.

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 prices on average would mean the lowering of India’s oil import bill by Rs 8,000 crore to Rs 16,000 crore.

India, the world’s fourth-largest oil consumer, imports around 190 million tonnes of crude oil a year at a cost of $145 billion, or more than a third of its total import bill.