As one of the world’s largest net importers of oil, India should be a key beneficiary of the recent slide in global oil prices. If prices remain lower, as we think likely, the oil import bill will fall and the current account deficit should shrink. We estimate that the current account deficit will be around 0.5% of GDP smaller next year if prices remain around the current $63 per barrel than it would have been if prices remained over $80. This would temper some of the concerns that have been building over the external position: the deficit has been close to breaching the 2% of GDP threshold that the RBI considers sustainable.
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