Fuel consumers in for ‘achhe din’: Report card

NEW DELHI: The Economic Survey has held out hopes of ‘achche din (good times)’ returning for fuel consumers, predicting 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 demand concerns to ease due to a slowdown.Worries over supplies tightening as a result of extended production cuts by the OPEC-plus grouping amid loss of Iranian shipments due to US sanctions are expected to be outweighed by this dip in demand.
When Modi took oath as Prime Minister in May 2014, India was paying about $108 per barrel for a mix of crude known as the ‘Indian basket’. A report by Macquarie Capital Securities India that year had said a $10/ barrel fall in prices would cut the import bill and 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 Survey sees a similar trend as 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 the Karnataka assembly polls in May 2018, forcing government to cut tax twice as fuel prices hit record high. This year, prices have risen almost 25% since January.
Government needs prices to decline or remain stable at moderate levels to improve macro-economic indicators — inflation, current account deficit and trade balance — when it is moving to jumpstart the economy and needs resources for big-ticket social plans like providing drinking water, medical cover to poor or crop insurance.
Oil forms the single biggest component in India's import bill. Low oil prices will boost demand and reduce input cost for farmers who use diesel for farm equipment. It also reduces subsidy liability, freeing up funds for other projects.