Data Drive: Preventing a crude shock

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March 14, 2020 6:15 AM

India, for instance, will benefit from this fall if the government does not increase excise duty to augment its poor earnings and given the states’ VAT on fuel is ad valorem.

global economy, corona pandemic, oil prices, VAT on fuel, current account deficit, GDP, CAD, RBIAccording to recently released figures, India’s CAD narrowed to $1.4 million or 0.2% of the GDP in the third quarter.

While the global economy may be slipping into a crisis given the corona pandemic, oil prices crashing from $60/barrel just a fortnight ago to $30 must come as a relief for most economies. India, for instance, will benefit from this fall if the government does not increase excise duty to augment its poor earnings and given the states’ VAT on fuel is ad valorem. But the bigger relief for India may come in the form of a relaxation in the current account deficit. According to recently released figures, India’s CAD narrowed to $1.4 million or 0.2% of the GDP in the third quarter. Given that oil accounts for 27% of the total import bill for the country, India will certainly benefit from lower prices. Plus, with inflation benign this will give more room for RBI to slash rates. However, a rate cut may not be much helpful as there is little credit offtake and there is little transmission. All eyes will now be on the monetary policy committee, which meets in April.

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