November has turned out to be a lucky month for the Narendra Modi government, even though it is not yet clear if this would reflect in the results of the ongoing state assembly elections. On Friday, Brent crude oil fell to $58.80 per barrel, the first time it has closed below the psychological $60-mark since October 26, 2017 and after having risen to as high as $86.29 only on October 3 this year. In the current month alone, the benchmark oil price has lost $16.67/barrel or over 22 per cent. That is clear indication of a bear market, as the earlier fears of political instability-induced output fluctuations in Venezuela, Libya and Nigeria, plus US sanctions against Iranian crude exports, have given way to increased supplies from the US, Russia and Saudi Arabia amidst signs of a global demand slump led by China.
All this is, of course, good news for India. There was a time when the Indian economy’s growth fortunes were, in Lord George Curzon’s famous words, a “gamble on the monsoon”. Today, it is oil that has become a greater macro risk. Low crude prices helped bring down the country’s external current account deficit from $88.16 billion in 2012-13 to $14.42 billion by 2016-17, just as their hardening pushed it up again to $48.72 billion in 2017-18. The risk of both climbing further — $100/barrel and $80 billion did not seem unlikely — is what also resulted in the rupee plunging to a lifetime low of 74.39-to-the-dollar on October 9 and foreign portfolio investors (FPI) selling $14.07 billion worth of Indian equities and debt during January-October. The rupee’s recovery since then to 70.70 levels and FPIs, too, turning net buyers to the tune of $861.68 million so far this month is further proof of how much crude matters. Oil’s recent weakening and the rupee’s strengthening, in turn, has also allowed retail prices of petrol and diesel in Mumbai to fall to Rs 80.79 and Rs 73.48 per litre, respectively, from their October 4 highs of Rs 91.34 and Rs 80.10. The Modi government would have liked the price decline to have happened somewhat earlier — to make it obvious to voters in Chhattisgarh and Madhya Pradesh — but even this isn’t any less manna from heaven.
Softer crude prices will also deliver relief on another front: Interest rates, which had been edging up, with yields on 10-year government bonds rising from 7.1 per cent in early-April to almost 8.2 per cent by the first half of September. Those have since eased to 7.7 per cent. With annual consumer food inflation, too, at minus 0.86 per cent for October, the RBI will be under no pressure to raise interest rates. The Modi government can only pray that this run of luck extends till the next Lok Sabha elections.