Crude oil became cheaper, a boon for India! Economy will accelerate in second half of FY 2027, know what will be the impact

The price of the ‘Indian basket’ of crude oil fell from $90 to $89.29 per barrel. It averaged $120 per barrel in October. This fall in prices could provide major relief on the macroeconomic front in the second half of FY 2027 (October-March). This will reduce inflation, reduce current account deficit (CAD) and reduce pressure on government exchequer. The average for October was the highest since March 2012, when the crude oil basket for India averaged $123.61 per barrel. A sharp rise in energy prices led to a significant rise in input costs, which pushed the wholesale inflation rate to 11.4 percent in September.

EY India Chief Policy Advisor DK Srivastava said in a Business Standard report that this massive drop in crude oil prices will have a positive impact on both growth rates and inflation. He said the impact of reducing inflation would be stronger than the impact of increasing the growth rate. This is because when oil prices were at their peak, growth rates were not adversely affected, but inflation rose sharply. The Finance Ministry’s October economic review said policymakers would focus on securing the second half of fiscal 2027. This will be done amid high crude oil prices, rising food prices and uncertainty over the kharif crop.

Crude oil estimates fall

According to international forecasts, crude oil prices may fall further in the coming year, as geopolitical risks are expected to ease and supplies from West Asia may improve. The US Energy Information Administration said in its November 10 forecast that Brent crude prices are likely to average $77 per barrel in the fourth quarter (October-December) of 2027. In the April 2026 monetary policy report of the Reserve Bank of India (RBI), it was estimated that if oil prices were 1 percent below $85 per barrel, inflation could come down by about 50 basis points and real GDP growth could rise by 15 basis points. This estimate is based on the assumption that the price reduction at the international level will also benefit the domestic market.

Crude oil prices may remain volatile

A major effect of the mid-term elections in America will be a wiser approach to war. Bank of Baroda Chief Economist Madan Sabnavis said in a BS report that oil prices could see below $100 as there are signs that there will be no fresh attack on Iran.

He said prices may remain volatile even after the lows due to geopolitical risk. Referring to the attack on Saudi Arabia by Yemen’s Houthis, he said that hence, prices will take time to stabilize at lower levels and remain volatile for longer, although it will see lower volatility (lower standard deviation) than before.

Srivastava said there will be uncertainty until the situation in West Asia normalizes and there is no concrete agreement between the warring parties. He further said that currently the situation is such that the price of crude oil can remain between 80 to 90 dollars per barrel.

Cad will decrease

For India, the immediate benefit of lower crude oil prices will be a reduction in the petroleum import bill, which will improve the current account balance. Sabnavis said any relief in oil prices would be good for India. First, the import bill will remain under control, allowing the current account deficit (CAD) to remain at a manageable level of 1 percent of GDP. Falling energy prices will also reduce cost pressure on industries. The recent surge in crude oil prices has increased the cost of intermediate products such as naphtha, while higher aviation turbine fuel (ATF) prices have increased operating costs for airlines.

Less impact on retail inflation

Sabnavis said the larger impact seen on wholesale inflation – which is reflected in the cost of manufacturing units – will be contained. Fuel prices have affected intermediate products like naphtha. If crude oil prices fall below $80, these prices should gradually return to their old levels. ATF prices should also come down, which will help airlines.

Subnavis believes that gains may be limited in case of loose inflation. Unlike wholesale prices, which respond more directly to changes in energy and industrial input costs, domestic gasoline and diesel prices are affected by government taxes and oil companies’ pricing decisions.

Sabnavis said I don’t think it will have much impact on CPI, as oil companies’ losses will be offset by lower prices. Sabnavis said that just as there has been no negative impact due to the fall in prices, similarly there will not be any major positive impact here.

Natural gas can get cheaper

Lower crude oil prices may also reduce natural gas prices, which could help curb the cost of government fertilizer subsidies. Natural gas is an important raw material for urea production. A rise in crude oil prices also affects gas prices, which increases the cost of fertilizer production and the need for subsidies.

Sabnavis said lower crude oil prices may have a positive impact on government financial figures to some extent. Fertilizer subsidy levels may remain stable. A rise in crude oil prices affects gas prices and therefore also affects fertilizer prices. India’s retail inflation crossed the RBI’s upper tolerance limit of 6 percent in October, raising the possibility of a further interest rate hike in December.