Fragile oil prices bolster India’s budget

A steady fall in global prices of crude oil has helped India reduce its twin deficits - fiscal and current account - thereby also reducing the government's subsidy burden, while providing it more leeway to support social security programmes.

With the oil price windfall, the upcoming budget for the 2015-16 fiscal, to be presented on 28 February, can now be expected to provide extra support to reform measures.

The halving of crude prices since mid-2014 has helped both the government and the consumer in India. While fuel prices came down from their highs, the government pocketed over Rs20,000 crore in fuel taxes.

Falling fuel prices have also helped ease the overall inflationary pressures on the economy.

Budget planners expect the gains from lower fuel subsidies, diesel tax hikes and divestment to be channeled to the Modi government's flagship programmes for generating employment in the 2015-16 budget.

Planners also expect more money to come from divestment of government stake in public sector enterprises during the remaining period of the financial year that ends on 31 March 2015.

Crude prices rose toward $55 a barrel on Thursday, recovering from part of the previous session's slide after China took steps to pour liquidity into the world's second-biggest economy, although traders and analysts said oil's outlook looked weak.

Crude snapped a four-day winning streak on Wednesday, when the US government said crude inventories increased by 6.3 million barrels, rising for a fourth consecutive week to hit a record high.

The oil market gained support from steps by China's central bank to boost liquidity that could spur demand for energy in the second-largest oil consumer after the United States, but lost the momentum on news of higher US inventories.

Brent crude rose 83 cents to $54.99 a barrel by 1016 GMT after falling more than a dollar intra-day earlier and settling 5.5 per cent lower on Wednesday. US benchmark sweet light crude WTC added 60 cents to $49.05.

As of now, the market remains highly volatile, in part due to a downturn in US rig activity that could eventually dampen rapid growth in shale oil production. But any major rise in oil prices would make shale oil exploration viable.