Discuss the impacts of recent global oil crash on the macroeconomic health of India.
Ans.:
The crash may bring some relief for India as India imports more than 80% of its oil needs and the price crash offers a breather on the macroeconomic front.
The collapse in oil prices will cut the country’s import bill, and soften its current account deficit.
According to estimates, a one-dollar decrease in crude oil price reduces the oil bill by around $1.6 billion per year.
The fall in crude prices will also help ease inflationary pressures that have been building up over the past few months.
This will increase the space for the monetary policy committee to ease rates further.
Low oil prices offer an opportunity to raise some revenue and improve its fiscal balance.
The growth slowdown in the last two years has resulted in a precarious fiscal situation because of tax revenue shortfalls.
The revenue earned, can be used by the government to spend or meet its fiscal commitments in the form of budgetary transfers to states, payment of dues and compensation for revenue shortfalls to state governments under the goods and services tax (GST) framework.
Further, the additional tax revenue thus generated through higher excise duty should be used to clear all dues of the central government, whether to private companies, state governments, or others awaiting tax refunds.
Also, putting cash in the hands of households and small businesses may tackle the slowdown in consumption in the Indian economy.
The potential excise duty windfall from oil prices could come in handy for the government to provide relief to beleaguered telecom companies.
However, there could be a flip side for India too from the oil price slump.
The value of Indian oil and gas companies will be impacted (Reliance-Aramco deal may get delayed).
Moreover remittances from the Persian Gulf will reduce along with Centre’s disinvestment programme as the sale of Bharat Petroleum Corporation Limited (BPCL) could get delayed.
