The Indian basket represents the average price of Oman and Dubai sour grade crude and the sweet Brent crude oil processed in Indian refineries in the ratio of 72:28. It stood at $54.41 per barrel on the last trading day of July 24, falling from a peak of $66.54 per barrel on May 6, and the lowest since April 2 price of $54.77 per barrel.

“The government had budgeted for an average crude price of $70 per barrel for this financial year. If the average price of $60 per barrel in the first four months (April-July) is sustained, we are looking at Rs 65,000 crore savings in import bill for companies, and around Rs 9,000 crore savings in the subsidy bill for the government,” said K Ravichandran, senior vice-president at research and ratings agency ICRA.

Currently, every $1 decrease in crude prices pulls down import bill by Rs 6,500 crore and the government’s subsidy burden by Rs 900 crore. However, the benefit would be limited by the ongoing depreciation in rupee value. The Indian currency on Monday fell to a six-week low closing at Rs 64.17 against the dollar. Currently, every Rs 1 increase in the exchange rate of dollar increases oil import bill by Rs 7,455 crore, according to Petroleum Planning and Analysis Cell (PPAC), an arm of the oil ministry.

Ravichandran also said the decline in crude prices is positive for Indian refiners — Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) — as their working capital requirements would reduce due to lower crude oil and product prices and lower gross under-recoveries (GURs) or loss suffered on subsidised sales of petroleum products like liquefied petroleum gas (LPG) and kerosene.

“Lower GURs for refiners would also mean reduced subsidy burden sharing for upstream companies like Oil and Natural Gas Corp (ONGC). The government has already exempted upstream firms from LPG subsidy sharing and limited the kerosene subsidy sharing to Rs 12 per litre for them. However, reduced crude prices would also expose ONGC’s overseas arm ONGC Videsh (OVL) and impact realisations from value-added products for ONGC,” Ravichandran said.

The oil marketing companies (OMCs) under-recoveries came down from Rs 139,869 crore in 2013-14 to Rs 72,314 crore last financial year, thanks to diesel deregulation and the roll out of Direct Benefit Transfer in LPG (DBTL) scheme. In the current financial year, the government is budgeting for a petroleum subsidy bill of Rs 30,000 crore, including Rs 22,000 crore on LPG sales, and the rest on kerosene. The government may now be able to save Rs 9,000 crore of this thanks to the decline in crude rates.

India imported 189 million tonne (MT) of crude oil at a cost of $112 billion last financial year (2014-15). With lower crude rates slated to create Rs 65,000 crore cushion for importers, OMCs could pass on the benefit to consumers by reducing retail prices of petrol and diesel to be announced by OMCs soon. In Delhi, the retail prices were last revised on 15 July through Rs 2.43 per litre cut in petrol and Rs 2.25 per litre cut in diesel. However, petrol prices increased by 28 paisa while diesel prices decreased by a minor 50 paisa after the state government raised Value Added Tax (VAT) rates.