With crude oil trading at a never-anticipated $49.80 per barrel these days, down from $105.52 a barrel the same time last year, India’s import bill has gone from $147 billion to $50 billion-$100 billion in 2014-15. Experts feel this is the time for India to create space in the Balance of Payments, lower its fiscal deficit to 4.1 per cent of the GDP, and cool inflation. With India’s forex reserves perched at an all-time high of $322.14 billion as per RBI data (up from a previous high of $320.78 billion in September 2011) and more money in the hands of the masses, growth can be accelerated. This is an opportunity to initiate market reforms by deregulating diesel that would lead to a reduction in subsidy bill, coupled with increase in tax revenues without stoking inflation. The sharp fall can hurt India’s exports as growth would lessen in oil-exporting nations, slowing down forex creation.
However, India has lost out on a huge opportunity to save billions in forex and fill up its strategic caverns with crude oil at a time when crude is trading at the lowest level, as all three under-construction caverns are well behind schedule. See story at bottom.