The  Prime Minister which is already hard pressed to meet its stiff fiscal deficit target, a fall in global crude oil prices may just be the much-needed relief. A fall in crude oil prices will lead to lowering of the government's subsidy bill for this fiscal.

Brent crude has been hovering around a 14-month low of $102 a barrel. According to Yusuke Seta, a commodity sales manager at Newedge Japan, there is still plenty of oil in the market, mostly due to weak demand from refineries in Europe and Asia. "At the moment, I don't see any factors that could possibly bring demand back into the market," Seta told Reuters.

In its latest report, Deutsche Bank says that falling demand and rising oil supplies have pressurized global oil prices recently. This has happened despite escalation in geopolitical risks, the bank says. "Brent crude prices have fallen by 11% to $102/bbl from the 2014 highs of $115/bbl in June 2014," it adds.

Given that rising oil price has been a 'bugbear' for Indian policy makers and a key headwind for the domestic macro economy, Deutsche Bank says that a dip in global crude oil prices will help the Indian government save around $8 billion on the import bill.

"India imports 85% of its crude oil requirement. Net oil imports at $95 billion accounted for 21% of India's total import bill and 64% of the trade deficit in FY14," the bank says in its report. "India's FY15 fuel subsidy is estimated at Rs 1 trillion ($16.6bn) at Deutsche Bank's Brent oil price forecast of $111/bbl. We estimate that every $10/bbl fall in oil price reduces India's annualized oil import bill by $10 billion and fuel subsidy by $5.6 billion," the bank substantiates.

The bank believes that the Indian government's FY15 budgeted oil subsidy at $10.6 billion and fiscal deficit at $88.5 billion are based on Brent crude oil price assumption of $110/bbl. "The current spot Brent crude price of about $102/bbl implies potential annualized savings of $8 billion on the import bill and $4.5 billion on fuel subsidies," it says.

The bank goes on to estimate that assuming government funds only 35% of the fuel subsidies, if brent crude price averages $100/bbl in FY15 it would imply a $2 billion reduction in government's budgetary allocation for oil subsidy and fiscal deficit. "At current spot prices, we estimate loss on diesel has fallen by over 90% to below Re 1/litre from a high of Rs 14.5/litre in September 2013," it says.

Additionally, Moody's anticipates a full deregulation of diesel prices over the next few months as it expects the newly elected government will continue to support the Rs 0.4-Rs 0.5 per litre price hike that has been in place since early 2013.

The fiscal deficit at the end of the first quarter was pegged at 56.1% of the budget estimate for the full year as revenue growth remained muted.

Recently it was reported that Bimal Jalan, former RBI Governor, will head Expenditure Management Commission which will suggest ways to reduce food, fertiliser and oil subsidies to contain the fiscal deficit.

The subsidy bill on food, petroleum and fertilisers is estimated at Rs 2,51,397.25 crore for 2014-15, up 2.47 per cent over the previous fiscal. It was Rs 2,45,451.50 crore in the revised estimates for 2013-14.

Finance Minister Arun Jaitley in his maiden budget had emphasised the need to review the allocative and operational efficiencies of the government expenditure to achieve maximum output.

Source:- auto.economictimes.indiatimes.com