India is facing a fading boost from low oil prices and while last year’s drop in crude prices magnified the improvement in India’s macro variables, the incremental impact is limited, according to a research report by DBS group.
A report from DBS by Radhika Rao (India Economist) on impact of oil prices on India’s macroeconomics said low crude prices have been of great help to a net oil-importer like India. Brent prices in rupee terms are down 70% from mid-2014 levels.
The report said while the economy benefitted significantly from the first leg of the oil price down move, the incremental boost to the economy will be limited this year. As the tide runs out, underlying fundamentals and policy decisions will be back in focus, it said.
The note pointed out that the drop in global crude prices was an unexpected windfall and helped to magnify improvements in the macroeconomic variables. The oil import bill was cut in half over the past two years. Fiscal savings on fuel subsides were accompanied by easing inflationary pressures. Tapping low global prices, excise taxes on fuel products were raised, boosting indirect tax collection.
However, going forward, the incremental boost from low prices this year will not be significant. While the fall in crude prices has halved the oil import bill, exports have also fared poorly, down 18% year on year so far this fiscal year. The higher weight of commodities in India’s export basket has hurt earnings in recent months.
A report from DBS by Radhika Rao (India Economist) on impact of oil prices on India’s macroeconomics said low crude prices have been of great help to a net oil-importer like India. Brent prices in rupee terms are down 70% from mid-2014 levels.
The report said while the economy benefitted significantly from the first leg of the oil price down move, the incremental boost to the economy will be limited this year. As the tide runs out, underlying fundamentals and policy decisions will be back in focus, it said.
The note pointed out that the drop in global crude prices was an unexpected windfall and helped to magnify improvements in the macroeconomic variables. The oil import bill was cut in half over the past two years. Fiscal savings on fuel subsides were accompanied by easing inflationary pressures. Tapping low global prices, excise taxes on fuel products were raised, boosting indirect tax collection.
However, going forward, the incremental boost from low prices this year will not be significant. While the fall in crude prices has halved the oil import bill, exports have also fared poorly, down 18% year on year so far this fiscal year. The higher weight of commodities in India’s export basket has hurt earnings in recent months.
