The report, accessed by TOI's Sanjay Dutta and Sidhartha, highlights a potential trade-off between fiscal revenues and inflation control.
“A fall in oil prices and the resulting reduction in import costs can be viewed as savings for India. However, it is up to the government to decide whether and how much of this savings should be passed on to the public through lower fuel prices,” said Rahul Bajoria in the report.
The report estimates that crude prices could decline by nearly INR 9 per litre between September 2023 and March 2024. Since the last fuel price revision in April, oil prices have fallen by 20%, leading to wider margins for fuel retailers. BofA Securities suggests that the government could leverage these gains.
“The government could see a revenue boost of nearly INR 110 billion annually from every additional rupee earned by oil companies on petroleum products. This could potentially translate to around INR 1 trillion on an annual basis, or 0.3% of GDP, assuming these numbers hold steady over the next year,” the report stated. This would allow the government to recover revenue lost in the past two years when excise duties were cut to shield consumers from rising energy prices.
Should the government opt to pass on the savings to consumers, it could have an immediate impact on inflation. Petrol holds a 2.19% weight in the Consumer Price Index (CPI), while diesel, primarily used for industrial purposes, has a weight of 0.15%. A INR 5 per litre reduction in fuel prices could lower the fuel index by 5.5%, leading to a 14 basis point direct reduction in inflation, with an additional 14–15 basis points of indirect impact over the next few months, according to the report.
With India importing 80% of its oil needs, the report estimates that a 20% drop in crude prices could result in annual savings of approximately USD 13 billion for every USD 10/barrel decrease. This would further strengthen the country's external finances, as the Reserve Bank of India (RBI) has already added USD 67 billion in foreign reserves in 2024 alone.
Brent crude prices, which recently dropped to USD 70/barrel — the lowest since December 2021 — remain below USD 75/barrel, marking a 20% decrease from the April peak of USD 92/barrel. The report also noted that increased imports of discounted Russian crude have contributed to reduced energy costs for India.
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