Blessing or Curse? The Impact of Global Crude Oil Prices on India's Industry
However, the impact on two public sector companies is the opposite. ONGC’s income increased by 4.2 per cent while OIL’s 8.8 per cent during Q1 2015–16 vis-à-vis Q1 2014–15 as their subsidy burden reduced steeply in line with decline in crude prices. ONGC’s share of the subsidy in Q1 2014–15 was `132,000 million which translated into a net profit reduction of `73,960 million.
Consequent upon deregulation of diesel price in October 2014 and fall in global crude prices, its subsidy burden declined sharply to `11,330 million in Q1 2015–16 with resultant net profit reduction of `6,280 million. Consequently, ONGC’s net profit increased even though global crude prices declined (table 2).
In the case of OIL, net revenue loss due to subsidy sharing in Q1 2015–16 was `1,674.3 million as compared to `18,465.5 million in the corresponding period of the previous year. But, its net profit declined marginally due to the increase in other expenses (table 2).
- As the price of petroleum products has fallen, albeit with lesser intensity than crude prices, and it has significant weight in Wholesale Price Index (WPI) and Consumer Price Index (CPI), the two indices have moved in subdued manner. WPI fell from 183.0 in June 2014 to 176.7 in August 2015, i.e., 3.4 per cent. On the other hand, CPI increased moderately by 6.9 per cent during the said period. On yearon- year basis, wholesale inflation and consumer inflation was -4.9 per cent and 3.66 per cent, respectively in August 2015. Any moderation in inflation has a positive impact on the Indian economy.
- Sustained subdued consumer inflation has prompted the Reserve Bank of India (RBI) to cut the key policy rate (reporate) by 50 basis points to 6.75 per cent recently, which has the potential to cut the interest rate. A reduction in interest rate may spur investment in the industry as well as boost the demand. Both may contribute to an increase in industrial output and economic growth.