Economic Survey sees ‘achhe din’ coming for fuel consumers

NEW DELHI: The Economic Survey on Thursday held out hopes of ‘achhe din (good times)’ returning for fuel consumers, predicting a moderation in global oil prices in a throwback to 2014 when the Narendra Modi government first came to power.


The report card for 2018-19, the culminating fiscal of the Modi government’s first term, expects oil to cool off as demand concerns on the back of economic slowdown outweigh worries over supplies tightening as a result of an extended production cut by OPEC-plus grouping amid loss of Iranian shipments due to US sanctions.

When Modi took oath as Prime Minister in May 2014, India was paying about $108 per barrel for the mix of crude it buys, known as the ‘Indian basket’. A report by Macquarie Capital Securities India that year had said a $10/ barrel fall in oil prices would reduce India's import bill and the current account deficit by $9.2 billion, or 0.43% of the then GDP.

By the third year into Modi’s first term, the price had more than halved to about $48 per barrel. This allowed the government to splurge on big-ticket welfare schemes without upsetting fiscal discipline as it mopped up resources by raising fuel tax.

The 2018-19 Survey sees something similar in 2019-20 as the government sets out to revive economic growth in its second term. But it is also frank to acknowledge the bumps. “US sanctions on oil import from Iran is likely to have impact on oil prices and thereby on the petroleum subsidy, apart from implications for current account balances,” says the Survey.

Oil has been on an upswing since 2017. Global marker Brent topped $80 per barrel around the time of Karnataka assembly election in May 2018, forcing the government to cut tax twice as fuel prices hit record high. This year, prices have risen almost 25% since January.

The government needs prices to decline or remain stable at moderate levels to improve macro-economic indicators – inflation, current account deficit (CAD) and trade balance – when it is moving to jump-start the economy and needs resources for big-ticket social plans such as providing drinking water, medical cover to poor or crop insurance for farmers.

Low oil prices will boost demand as well as reduce input cost for farmers who use diesel to run farm equipment. It also reduces government’s subsidy liability, freeing up funds for other projects.



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