Fall in crude prices may not be entirely positive for India’s fiscal situation
Conventional wisdom is that India will benefit from falling crude prices. The import bill will reduce, fiscal deficit will fall and the current account will look healthier.
While that is a given, there is a flip side to the issue and that could hurt us. Brokerage CLSA highlights a problem that could become bigger if the crumbling finances of Saudi Arabia and other Gulf countries force mass lay-offs and shutdowns.
Half of India’s annual remittances, ($37 billion) come from Gulf countries. CLSA notes that a sustained decline in oil prices could lead to job pressures in the region. A potential 25% decline could increase current account deficit by 50 bps. Now, that is something to definitely ponder about.