U.S. crude and Brent prices plunged after OPEC and its allies failed last week to strike a deal on production cuts. This could be good news for India.
"A prolonged spell of low oil prices will support discretionary purchasing power," Radhika Rao, an economist at Singapore's DBS Group, told CNBC. Discretionary purchasing power refers to the amount of cash a person has available to spend after discounting their tax, debt obligation, and other expenses.
She explained that domestic oil prices could potentially become cheaper and declining margin pressures on non-oil businesses may translate into some relief for the low demand weighing on the economy. "If accompanied by an improvement in sentiments and better confidence over income prospects, this would spell good news for growth," Rao said. "We are hopeful that an increase in government spending, positive net exports position and base effects could push up growth."Biswas added that sharply lower oil and gas costs would also help boost profitability for sectors that are intensive users of petroleum — such as petrochemicals, power generation, and transportation.
Softening of inflationary pressure on the economy could also give the Reserve Bank of India more room to cut interest rates further in an attempt to help stimulate growth and improve the flow of money in India's financial markets, he said.showed between April and December — the current fiscal year ends on Mar. 2020 — the country's import bill for oil was $95.69 billion, almost 12% lower than a year ago.
India's Petroleum Minister Dharmendra Pradhan told CNBC last month he would be happy if crude prices were at levels between $50 and $60 a barrel.
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