What cooling oil prices mean for India (Hint: A lot)

The government has budgeted ₹1.68 trillion for fertilizer subsidies in FY26. While such allocations are typically increased during the year, current trends suggest the Centre may manage to bring down the subsidy bill, two people aware of the matter said.

“If crude prices remain soft, the fertilizer subsidy bill could stay within the budgeted ₹1.68 trillion for FY26, and may even fall by 5-10%," one of the two people mentioned above said on the condition of anonymity. Softer crude prices will ease fiscal pressure amid broader economic challenges, the person added.

Cheaper oil could help India save ₹45,000-50,000 crore in import bills, assuming consumption remains at FY25 levels and rupee remains stable during the year, and average global crude oil prices remains at $60-65 a barrel. Subsidy savings could free up fiscal space for increased public investment in infrastructure and welfare. At the same time, falling input costs improves profit margins in energy-intensive sectors, strengthening the overall investment climate.

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Brent crude prices cooled from nearly $75 per barrel in January to around $60 in March as demand fell, supply rose, and trade tensions flared. In April, the price inched back to $65. In contrast, oil averaged around $80 in 2024, and $82 in 2023. Oil has an outsized influence on India's import bills since the country imports 86% of its requirements. According to data from the Petroleum Planning and Analysis Cell, the Indian crude basket averaged $79.85 per barrel in 2024. In the first quarter of 2025 (January–March), the average slipped to $76.68 per barrel.

“If crude prices remain low through the year, it will ease the import bill, support the rupee, and narrow the current account deficit, while creating more fiscal space for public investment," the second person said, adding that sustained low prices help curb inflation further and improve trade balances.

In FY24, the Centre spent ₹1.88 trillion on fertilizer subsidies, a significant portion of the total ₹4.35 trillion subsidy bill. For FY25, the fertilizer subsidy was initially budgeted at ₹1.64 trillion and later revised to ₹1.71 trillion.

“With inflation under control and GDP growth projected above 6% (6.3%-6.8% during FY26 according to the latest economic survey), lower oil prices could create much-needed fiscal room as India navigates global headwinds," the second person added.

Read this | Fertilizer subsidy allocation likely to stay steady in FY26 budget

A finance ministry spokesperson didn't respond to emailed queries.

A sustained drop in oil prices could also reduce the Centre’s LPG subsidy bill in FY26, potentially eliminating the need for additional allocations, the first person added. “If crude oil prices remain low through FY26, the Centre may not require additional allocations for LPG subsidies, potentially saving up to 5% over the budgeted amount, depending on gas price movements during the year," the person said.

In FY25, the government budgeted ₹11,925 crore for LPG subsidies, but actual spending rose to ₹14,700 crore, up from ₹12,240 crore in FY24. LPG price is closely tied to that of crude oil.

Experts said lower crude prices could help cushion the impact on India’s trade deficit if exports decline amid global volatility in FY26 with the IMF’s recent downward revision of India’s 2025 growth outlook suggesting a potential ₹1 trillion drop in nominal GDP, which, if largely absorbed by exporters, may widen the current account deficit by 40–50 basis points.

"Cheaper crude could help minimize the effect on CAD (current account deficit), thereby supporting the Indian rupee. However, one thing to note is that in recent years, India had the benefit of a discounted crude basket (compared to the global average price). However, as the share of US crude rises in India's import basket, this discount could decline sharply," said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.

Also read | Centre’s fertilizer subsidy unlikely to see higher than budgeted allocation during FY25

"For the third largest crude importer, this may lead to a sharp notional rise in import bills. Whether this is absorbed by lower crude prices needs to be seen," he added.

India's goods trade deficit in FY25 stood at $282.83 billion, up from $241.14 billion in FY24. Meanwhile, ​CAD for the third quarter of FY25 stood at $11.5 billion, equivalent to 1.1% of GDP, according to data from the Reserve Bank of India. This marks an increase from the $9.7 billion deficit (1.1% of GDP) recorded in the first quarter of FY25 (April–June 2024).

Broadly, a $1 drop in crude oil prices reduces India’s import bill by ₹2,900 crore, while a ₹1 depreciation in the currency adds ₹2,700 crore to spending.

According to PPAC data, India's crude oil imports rose 4.2% annually to 242.4 million tonnes (MT) in FY25, up from 232.7 MT in FY24, while import dependency edged up to 88.2% from 87.8% during the same period.

According to brokerage firm Angel One, every $10 rise in crude oil prices widens India’s current account deficit by 0.55% and pushes up the consumer price index (CPI) by 0.3%, as oil constitutes a major share of the country’s import bill.

Data from the Petroleum Planning and Analysis Cell (PPAC) shows that the Indian crude basket averaged $79.85 per barrel in 2024, dropping to $76.68 in the March quarter.

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Meanwhile, Consumer Price Index (CPI)-based inflation is expected to average 4.7% in FY25, according to the Ministry of Statistics and Programme Implementation (MoSPI).

CPI inflation for FY26 is projected at 4%, with quarterly estimates at 3.6% in Q1, 3.9% in Q2, 3.8% in Q3, and 4.4% in Q4.

"Benign oil prices could lead to a downward revision in CPI estimates for FY26, but the impact will depend on sustained softness throughout the year, as recent declines alone may not be sufficient to materially alter the inflation trajectory," the second person added.

The International Energy Agency in April lowered global oil demand growth down by 300 kb/d to 730 kb/d, citing the negative impact of escalating trade tensions on the economic outlook. Growth is expected to slow further in 2026 to 690 kb/d.

A dollar fall in crude oil prices (currency remaining stable) results in 30-50 paise per litre fall in price of petrol and diesel.

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Prices of petrol and diesel were last reduced in March, 2024 by ₹2 a litre when crude oil price of Indian basket was at $ 84 a litre. In April 2025, crude oil price is at around $ 68 a barrel according to PPAC. This $16 fall in crude oil prices should have translated to a reduction in petrol and diesel prices between ₹4.80 per litre and ₹8 per litre. If government decides not to raise taxes on petroleum products to minimize the requirement of price while enhancing its revenue, consumers will gain with a price cut in fuels, that would also help to reduce transport costs and benefit the economy with lower logistics cost.