New Delhi: A recent decline in international crude oil prices is set to bring substantial macroeconomic relief to the Indian economy during the second half of the financial year 2026-27 (October-March). The average price of the Indian crude oil basket has dropped from a staggering $120 per barrel in October to $89.29 per barrel, offering a much-needed breather for domestic inflation, the current account deficit (CAD), and the government’s fiscal health.
Earlier in October, crude prices had soared to their highest levels since March 2012, driving up industrial input costs and pushing wholesale inflation to a severe 11.4 percent. Speaking to Business Standard, EY India Chief Policy Advisor DK Srivastava noted that the current price drop will positively impact both the economic growth rate and inflation. He stated that the relief on the inflation front would be particularly pronounced compared to the growth effect.
The US Energy Information Administration (EIA) projects Brent crude to average around $77 per barrel by the fourth quarter of 2027, driven by a potential easing of geopolitical tensions and improved supplies from West Asia. However, experts like Bank of Baroda Chief Economist Madan Sabnavis cautioned that while prices might fall below the $100 mark, long-term volatility will persist until a concrete peace agreement is established in the Middle East.
For India, the immediate benefit of cheaper crude oil is a massive reduction in its petroleum import bill. According to Sabnavis, this relief could help keep the CAD restricted to a manageable level of 1 percent of the GDP. Lower energy prices will also significantly reduce operational costs for domestic industries, especially airlines, which have been struggling with sky-high Aviation Turbine Fuel (ATF) expenses.
However, the impact on everyday retail inflation might remain limited. Unlike wholesale prices, which react directly to industrial input costs, retail petrol and diesel prices are heavily dictated by government taxes and the pricing strategies of oil marketing companies. Sabnavis explained that oil companies might use the lowered crude prices to recover their previous losses rather than passing the benefits down to everyday consumers, keeping the Consumer Price Index (CPI) relatively stable.
Additionally, the drop in crude prices is expected to pull down natural gas prices, which will directly help the central government manage its fertiliser subsidy expenditures more effectively.