The fall of crude price is the major topic which the
whole world is taking about, especially when we are talking in the Indian
context it is even more important as India is the largest importer of oil in
the world. India imports 75% of its consumption when it comes to crude oil. The
price of crude oil was about $120/Barrel before two months which fell to about
$49/Barrel and now trading at about $60/Barrel, it clearly states that it has
fell for more than 50% in two months, our major focus won’t be why it fell but to
understand its effect on Indian Economy as a whole.
India’s net imports of crude oil amount a billion
barrels every year. So if crude oil prices average about $100 per barrel in the
current fiscal v/s $106 per barrel in the first six months of the financial
year, the country’s import bill will fall by about $10 billion which is close
to one third of current account deficit in 2013-14. So the fall in the crude
oil prices should boost GDP in multiple ways, every $10 fall in the price of
crude oil will boost the GDP of India by 50 basis points, it will also boost
probably all the sectors, as crude oil is the major raw material in any sector through
which the corporate will have higher margins as their inputs will become
cheaper which will also enhance business investments, which will have a
positive impact on the IIP and boost manufacturing in India.
A dollar fall in the price of crude oil will save about INR 4000 Crores. Crude oil import in 2013-14 was $165 billion, about 37% of the total import bill. In April-November 2014, it was $90.3 billion, about 28.3 per cent of the total import. India also exports petroleum products and in year 2014-15 till November, these were $42.6 billion or a fifth of total exports, which clearly shows that India is saving on Forex reserves through which we are sitting on the all time high of Forex reserves at $330 billion. The fall in crude oil price will also reduce a huge burden on the government from huge subsidizes it is currently giving. Given the higher share of tradable goods in the wholesale price index, the impact of lower commodity prices is much higher on WPI inflation than CPI inflation. Lower oil price directly impacts 8.6 percent of the WPI basket (crude petroleum and fuels excluding kerosene and LPG) and additionally around 5 percent indirectly through lower price of crude derivatives such as chemicals. Every $10 per barrel fall in crude oil price lowers WPI by around 0.5 percent and CPI by about 0.2 percent. The results of the same are clearly is seen as the WPI in January 2015 came to be -0.39%.
A dollar fall in the price of crude oil will save about INR 4000 Crores. Crude oil import in 2013-14 was $165 billion, about 37% of the total import bill. In April-November 2014, it was $90.3 billion, about 28.3 per cent of the total import. India also exports petroleum products and in year 2014-15 till November, these were $42.6 billion or a fifth of total exports, which clearly shows that India is saving on Forex reserves through which we are sitting on the all time high of Forex reserves at $330 billion. The fall in crude oil price will also reduce a huge burden on the government from huge subsidizes it is currently giving. Given the higher share of tradable goods in the wholesale price index, the impact of lower commodity prices is much higher on WPI inflation than CPI inflation. Lower oil price directly impacts 8.6 percent of the WPI basket (crude petroleum and fuels excluding kerosene and LPG) and additionally around 5 percent indirectly through lower price of crude derivatives such as chemicals. Every $10 per barrel fall in crude oil price lowers WPI by around 0.5 percent and CPI by about 0.2 percent. The results of the same are clearly is seen as the WPI in January 2015 came to be -0.39%.
There is also another side to the story that fall in
the price of crude oil will increase dis inflationary pressure in India but I think
that dis inflationary is needed and which will act as boon to the Indian Economy
as to stabilize the growth pattern and have a match between the wages rate and
prices of goods in India, India needs disinflation which will increase the
disposable income of the households which will lead to increased consumer
spending and boost investments & savings.
Also there are some sectors which will have a
negative effect of the falling crude oil price such as Exploration & Production
of the crude oil because of the heavy inventory loss but overall the fall in
the crude oil is boon for India as the benefits are more than its disadvantages
which will enhance India Economy as whole.
