The price of Indian crude basket fell below $20 a barrel on April 15 as the lockdown resulted in historic dip in transportation fuel demand in the country. The low price is a respite for the government when the economy restarts after five weeks of shutdown. The average price of Indian basket was $33.36 a barrel in March compared to $71 in April 2019 — the first month of last financial year. On April 15, the price slipped to $19.32. The price is predicted to fall further to below $10 despite the production cuts as the world may soon run out of space to store its extra oil.

The prices of West Texas Intermediate and Brent crudes is hovering around $18 and $28, respectively. Thanks to falling crude prices, India’s gross imports will fall by 25 per cent to $350 billion, said SBI in its earlier research report.

India imports about 82 per cent of its required crude and it alone accounts for over 20 per cent of India’s whole merchandise imports. The country’s current account deficit (CAD; the difference between inflow and outflow of foreign currency) could turn positive in this financial year with crude prices at its record low in the recent history. This could help rupee get some cushion, while India’s economic growth is expected to crash in this financial year.

The Reserve Bank expects the value of the domestic currency to hover around Rs 75 against dollar and Indian crude basket to about $35 per barrel during 2020-21. The country has imported Rs 7.8 lakh crore worth crude in 2018/19. In the first 11 months of 2019/20 (without March), the crude import bill stood at Rs 6.7 lakh crore, which is lower.

The global oil demand is expected to be down by nearly 30 million barrels per day (mb/d) in April and almost 10 mb/d for the entire year, according to the latest estimates. But some forecasts still optimistically assume that demand will bounce back in the second half of the year in a “V-shaped” recovery.

In early March, the oil price collapsed overnight by 25 per cent after Saudi Arabia shocked the market by launching a price war against its earlier ally Russia. It gave a lot of hope for the India government, which witnessed its fiscal deficit widening because of the low economic activity and delay in the disinvestment plan.

The fall is a breather for the India government, which is facing lower than expected GST collections. Cheaper crude reduces India’s foreign currency outflow and inflationary pressures, besides reviving economic activity. The lower prices reduce pressure on inflation and interest rates and revive economic activity.

However, the sharp fall of Indian rupee against the US dollar, at a time when more cases of the coronavirus are being reported in the country, can play a spoilsport in the crude gain as it would appreciate the import costs. The exit of foreign institutional investors (FIIs) from the stock market is also not a good sign, which can hamper the crude bonanza, as it will hurt the economic activity.

The lower fuel prices will boost consumer spending and government’s income from excise duty. At the macro level, it impacts the fiscal deficit, external borrowings and debt position.

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