The recent plunge in crude oil prices on the global market, marking a four-month low, is anticipated to provide a significant boost to the Indian economy.
India had been grappling with an escalating current account deficit due to the substantial oil import bill, exerting pressure on the rupee, which weakened owing to the heightened demand for dollars necessary for purchasing expensive oil.
The global benchmark Brent crude experienced a noteworthy 4.63% decline, closing at $77.42 per barrel, while the US's West Texas Intermediate crude oil futures dropped by 4.9%, settling at $72.90 per barrel on Thursday.
Several factors contributed to this decline, including an upsurge in US crude oil inventories, a resurgence in US Treasury yields, and a slowdown in oil demand due to the global economic deceleration. These elements have collectively contributed to a steady decrease in crude prices observed over the past four weeks.
India faced a record-high merchandise trade deficit in October, and the drop in oil prices is poised to bring relief in November. With the country importing more than 80% of its crude oil requirement, any fluctuations in prices significantly impact the current account deficit.
The hike in oil prices often triggers inflation and amplifies the government's subsidy expenses on essential commodities such as LPG, CNG, and fertilizers, consequently contributing to a higher fiscal deficit.
The decrease in crude oil prices, while beneficial for the Indian economy by alleviating the current account deficit and potential inflationary pressures, also aids in curbing government spending on subsidies, offering a breather for fiscal management.
(With Agency Inputs)
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