The prices of India's crude oil basket have fallen from ninety dollars per barrel to eighty-nine dollars and twenty-nine cents, which is seen as a major relief for the country on the economic front, while in October, this average was seen at one hundred and twenty dollars per barrel, which was the highest since March 2012 when the average value of the crude oil basket for India was one hundred and twenty-three dollars and sixty-one cents per barrel. Due to this massive surge in energy prices, input costs increased Notably, pushing the wholesale inflation rate up to eleven point four percent in September. This decrease in prices can provide major relief on the macroeconomic front during the second half of fiscal year 2027, spanning from October to March, which will lower inflation, reduce the current account deficit, and decrease the pressure on government finances.
Broad Impact on Economy and Inflation
DK Srivastava, Chief Policy Advisor at EY India, said in a Business Standard report that this major decline in crude oil prices will have a positive impact on both growth rate and inflation. He stated that the inflation-reducing effect will be much stronger than the growth-boosting effect. This is because when oil prices were at their peak, the growth rate wasn't severely impacted, but inflation rose quite rapidly. The Ministry of Finance's monthly economic review for October stated that policymakers will focus on safeguarding the second half of fiscal year 2027 amid high crude oil prices, rising food inflation, and uncertainty regarding the Kharif crop.
International Projections and Global Trends
According to international projections, crude oil prices may decline further in the coming year as geopolitical risks are expected to ease and supply from West Asia improves. The US Energy Information Administration stated in its November 10 projection that Brent crude prices are expected to average seventy-seven dollars per barrel in the fourth quarter of 2027, from October to December. The Reserve Bank of India's monetary policy report of April 2026 projected that if crude oil prices drop by ten percent from the base level of eighty-five dollars per barrel, inflation could decrease by about fifty basis points and real GDP growth rate could increase by fifteen basis points. This projection is based on the assumption that the benefits of price declines internationally will be passed on to the domestic market.
Volatility and Geopolitical Risks
A major impact of the midterm elections in the US will be a more sensible approach towards warfare, while bank of Baroda Chief Economist Madan Sabnavis said in a BS report that since indications are that there will be no new attacks on Iran, oil prices could remain below one hundred dollars. He noted that even after prices drop to lower levels due to geopolitical risks, they might remain volatile. Referring to the attacks on Saudi Arabia by Yemen's Houthis, he said that it will take time for prices to stabilize at lower levels and fluctuations will persist for a long time, though with lower standard deviation compared to before, while srivastava mentioned that until the situation in West Asia normalizes and a firm agreement is reached between warring parties, uncertainty will persist, and conditions currently are such that crude oil prices may hover between eighty and ninety dollars per barrel.
Improvement in Current Account Deficit and Import Bill
For India, the immediate benefit of lower crude oil prices will be a reduction in the petroleum import bill, improving the current account balance. Sabnavis said that any relief in oil prices is good for India. First of all, the import bill will remain in control, keeping the current account deficit at a manageable level of one percent of GDP. Lower energy prices will also reduce cost pressures on industries. The recent surge in crude oil prices increased the costs of intermediate products like naphtha, while high prices of aviation turbine fuel increased operating expenses for airlines.
Impact on Wholesale and Retail Inflation
Sabnavis stated that the major impact visible on wholesale inflation, which reflects in manufacturing unit costs, will come under control. The impact of fuel prices has fallen on intermediate products like naphtha. If crude oil prices fall below eighty dollars, these prices should gradually return to their old levels, and ATF prices should also decrease, helping airlines. However, Sabnavis believes that benefits in terms of retail inflation may be limited. Unlike wholesale prices, which react more directly to changes in energy and industrial input costs, domestic petrol and diesel prices are influenced by government taxes and oil companies' pricing decisions. Sabnavis said he doesn't think this will have a major impact on CPI because falling prices will compensate for oil companies' losses, and just as no negative impact occurred when prices rose, there won't be any major positive impact here either. In October, India's retail inflation rate crossed the RBI's upper tolerance limit of six percent, increasing the likelihood of another interest rate hike in December.
Relief for Natural Gas and Fertilizer Subsidy
Lower crude oil prices could also reduce natural gas prices, helping the government control its fertilizer subsidy expenditure. Natural gas is an essential raw material for urea production. When crude oil prices rise, gas prices are also affected, increasing fertilizer production costs and subsidy requirements. Sabnavis said that lower crude oil prices could have a somewhat positive impact on government financial figures, and the level of fertilizer subsidy could remain stable. The increase in crude oil prices affects gas prices and consequently impacts fertilizers. Considering all these aspects, the second half of fiscal year 2027 is going to prove extremely crucial for the country's economy.