Global oil prices breached the six-year low of $45 a barrel briefly on Tuesday but the last word is yet to be heard on how far crude would slide before bouncing back. While the low prices kept the good times rolling for emerging economies such as India, the slide is not without negatives.
Crude has fallen nearly 60% from $111 a barrel in June after Opec swing producer Saudi Arabia initiated a price war to retain market share against rising supplies from new players such as the US shale industry and Russia.
For India, the takeaway has been sharp reduction in pump prices of petrol and diesel. Petrol prices are now Rs 12.27 per litre lower than in August, while diesel prices are down Rs 8.46 a litre since October. Another round of cuts is expected on Janaury 15.
Low oil prices would reduce inflation and the oil import bill, which was $160 billion last year and is likely to be around $100-110 billion this year. It would also bring down subsidy on kerosene and cooking gas. All these would go a long way in keeping the deficit in check and lowering the need for raising taxes.