The country’s current account deficit had started to spiral out of control due to the huge oil import bill and the rupee had been weakening due to the higher demand for dollars to buy expensive oil.
The price of the global benchmark Brent crude fell by 4.63 per cent to close at $77.42 per barrel on Thursday, while the US’s West Texas Intermediate crude oil futures fell 4.9 per cent to settle at $72.90 per barrel.
An increase in US crude oil inventories, a rebound in US Treasury yields, and the easing of oil demand due to the global economic slowdown have contributed to the decline in crude prices. Prices have in fact been gradually declining over the last four weeks.
India’s merchandise trade deficit rose to a record high in October and the decline in oil prices would bring respite in November.
The country imports over 80 per cent of its crude oil requirement and any increase in prices leads to a sharp increase in the current account deficit.
Higher oil prices also fuel inflation and cause the government’s subsidy bill on LPG, CNG and fertilisers to go up which leads to a higher fiscal deficit.
