The landmark accord reached between the West and Iran to restrict the latter’s nuclear programme drove down global oil prices on Monday. This trend of falling oil prices is expected to continue and benefit major oil importing economies like India and China.
Any fall in global oil prices has a direct impact on the Indian economy as low prices will lead to a reduced outgo of precious foreign exchange, which, in turn, will trim the country’s ballooning oil import bill.
India’s oil imports, which stood at close to $145 billion in 2012-13, had put the country’s economy in a severe bind, with the current account deficit (CAD) — the difference between dollar inflows and dollar outflows — peaking to alarming levels and threatening a sovereign downgrade.
Low crude oil prices will also help the government bring down CAD, which touched a record high to 4.8% of GDP last fiscal, to levels that are even lower than the revised estimates of about 3.1% of GDP.
“The deal will not only reduce India’s import bill as energy prices ease, but also make a big difference to inflation, which has remained the bane of the Indian economy for the last six years,” said industry body Assocham.
Despite Western sanctions on Iran, New Delhi had walked the diplomatic tightrope maintaining warm ties with the US without entirely giving up on oil deals and strategic ties with Tehran.
“This is a historic decision and, hopefully, a first step towards engaging Iran in a deeper and more meaningful manner... this will benefit Indian companies and help promote bilateral trade between India and Iran,” said Naina Lal Kidwai, president, FICCI.