Oil the biggest challenge for Modi might turn out of be his mightiest ally in 2019

Oil the biggest challenge for Modi might turn out of be his mightiest ally in 2019
Highlights

The challenges of the Modi government on the economic front are fuel prices, rupee, staterun banks, Reserve Bank India, current account deficit, fiscal deficit All of them seem to be such big problematic areas because of just one factor which is slowly turning into the governments favour

The challenges of the Modi government on the economic front are fuel prices, rupee, state-run banks, Reserve Bank India, current account deficit, fiscal deficit. All of them seem to be such big problematic areas because of just one factor which is slowly turning into the government’s favour.

The oil prices have increased more than 26% from a four-year high (of $86 a barrel) in the month of October. It has been a dramatic change of sentiment in just about a month with traders switching from predicting $100 per barrel oil to fearing another supply glut among dimming of the demand prospects. US had decided to allow the Iranian oil shipments for some countries to continue even after imposing sanctions, as well as the rising American inventories and the record output of the oil has hit prices of oil.

Falling of oil prices will be bringing down India's import bil and that's a good news for the current account deficit. If current prices tend to continue, India’s oil import bill in 2018-19 would be much lower than Rs 8.8 lakh crore as projected by the oil ministry based on an assumed crude price of $77.88 per barrel with an exchange rate of Rs 72.22 per dollar.

Lower oil price also would mean lower pressure on the rupee as we will be needing fewer dollars to purchase oil. Centre will be having to spend less on the subsidising fuel and LPG prices and the oil companies can cut petrol and diesel prices which had been creating daily records in the last month.

It could ease of the government’s tussle the with Reserve Bank of India, which is about bringing in more money into the system. Since lower fuel prices also give lower risk of inflation, which means increased room for RBI to cut down the interest rate in future.

With less money to spend on oil means higher public resources for the welfare of other projects and schemes. Government can have the choice of not lowering fuel taxes further, which means it keeps gaining revenues from oil. That’s a good news for politics. There is at least one report which says that the government might be planning to roll out the goodies in the next year’s budget and not be presenting a boring one as most of the election-year are temporary budgets.

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