DECLINE IN GLOBAL CRUDE PRICES AND INDIA'S EXTERNAL SECTOR.

INDIA'S EXTERNAL SECTOR 

The geo political conflicts and trade disruptions have been impacting much awaited resilience of global economy. Extended supply side pressures have led to persistent increase in commodity prices and consequentlly rising inflationary pressures till early June 2026. In this context World Bank's latest Global Economic Prospects  projected the global growth to slow down to 3.4 %.Expectations varied between major Advanced Economies (AE) and Emerging Markets and developing Economies (EMDES).Such variations are  attributed to volatile capital flows,energy prices and shifting global trade patterns and dynamics. India's external sector is also facing unprecedented problems. In India energy vulnerability is primarily due to heavy import dependence of nearly 85% of India's crude oil requirements making it highly vulnerable to global price fluctuations. Usually rising oil prices  are also followed by geopolitical tensions (as in West Asia) which consequentlly increases import bill impacting Current Account Deficit (CAD) and likely to result in imported inflation as well. Fortunately as things stand today there is some resilient trends in global energy prices which is expected to remain in the coming days.

In India on the trade front the irreversible reality is that persistent trade deficit especially in goods sector continue to exist. Despite continuous depreciation of the rupee we are yet to take advantage of it  in promoting our exports in global market

Foriegn investment inflows and outflows both direct as well as portfolios/ institutional do have  tremendous impact in determining the strength of the external sector in a given economy There has been significant outflows of foreign portfolio investment ( FPI) in recent years .This is necessitated largely due to reportedly high returns on investment available in developed countries, concerns over Indian taxation policies and a global shift towards safer assets, that consequentlly weakens the rupee and also tightens domestic liquidity. Eventhough FDI flows have been encouraging in April 2026 ,FPI witnessed outflow of $ 13.7 billion till June 2nd.2026.However as on  May 29 ,2026 our foreign exchange reserves (FER ) stood at a  healthy level of $ 682.3 billion 

DECLINE IN GLOBAL ENERGY PRICES  

Oil demand in China world's largest importer of crude fallen faster than many  analysts anticipated. Whether China picks up new purchases in the coming weeks will have huge impact on global market. On the other hand the closure of Strait of Hormuz had trapped much of the crude and petroleum products of countries like Saudi Arabia, UAE and Iraq. Assuming that the 60 day ceasefire signed last week between US and Iran which include the free flow of trade through the Strait of Hormuz if holds good oil supply would be resumed to the pre war levels.As of now It is heartening to note that India's crude basket has returned to pre Iran war levels and an estimated ₹ 13000 crores import bill relief will be available per each $ 10 fall in crude prices. According to Petroleum Planning and Analysis cell (PPAC),the basket price crashed a steep 55% from a record high of $157.04 barrel on March 23 to$70.71 on June 24 completely reversing the oil shock.The latest price is equal to that of February 19 ,and the conflict started through US missile strike on Iran on February 28.The Indian crude basket which stood at $70.70 per barrel as on February 19th shot up to$157.04 per barrel due to the crisis as on March 23, declined after easing  to the pre conflict leve to $70.71 per barrel as on 24th June 2026.A drop in crude prices narrows down Current Account Deficit (CAD) and reduces foreign exchange outflows. 

The retail petrol product prices in India are calculated on a daily basis using market based "dynamic  pricing model " The formula is based on international crude oil costs and the US dollar rupee exchange rate, freights,insurance, refining costs central Excise duties, state VAT, profit margins of Oil Marketing Companies (OMCS) and dealer commissions. Once the present decline in international crude prices are transferred to the retail consumers it will have  easing effect on both wholesale and retail inflation.The ongoing  discussions between the  Government  and Oil Marketing Companies indicated that only after recovering the reportedly  accumulated previous losses the benefit of current decline in crude prices will be transferred to the retail consumers. Different sectors like aviation, logistics, paints, chemicals, and Fast Moving Consumer Goods (FMCG) are likely to benefit from the reduced crude  prices, thereby reducing inflationary pressures in the economy.Moreover Government's fiscal burden on fertilizers and LPG also get reduced due to reduced subsidy burden resulting in  improved fiscal health and reduced public expenditure. 

CONCLUSION 

Uncertainty prevails regarding the free movement of ships across waterways  in the Strait of Hormuz .Both Iran and US accuse each other on missile and drone strikes,,coastal radar positions etc and the tensions may  likely  aggravate further. On the otherhand if they act rationaly  and Strait of Hormuz is made free, allowing free movement of energy goods, obviously global economy particularly fossilfuel import dependent countries like India would be benefited much.