There is thus some comfort on the fiscal front as well as in containing the current account deficit, at least on oil account, India being the third largest oil importer. Given the prospects of low oil prices prevailing in 2015, countries with sizeable deficits could significantly improve fiscal space available to them.

In India's case, there is also need for public investment in infrastructure to galvanise the economy for a sustained growth path, not less than 6 per cent, to begin with, in the coming fiscal year (2015-16). This has become all the more necessary as private investments have not been forthcoming of the order expected so far. The Modi magic had not worked in the first seven months.

Indeed the corporates themselves have called for public spending on infrastructure to crowd in private investment, at their pre-budget meeting with the Finance Minister on January 6.There is expectation that the forthcoming budget would give a big push for investments, both public and private, in order to restore India's growth trajectory in the near future.

There has been much speculation on the causative factors for the oil price plunge. Most studies and analysts conclude that supply-related factors have played the dominant role. USA has become a major oil producer, reducing its own imports of foreign oil, and the uneven global growth has also reduced demand for oil for some countries.

The World Bank says that after years of upward surprises and stability around 105 dollars/bbl for four years, prices have declined sharply since June 2014, a larger fall than seen in other commodity price indices. Besides downward surprises in demand, it refers to the unwinding of geopolitical risks that had threatened production, changing OPEC policy objectives, and appreciation of US dollar as factors for the price plunge.

A general conclusion in all assessments so far is that supply- related factors appear to have played a dominant role. The Bank has discussed the fiscal challenges for developing countries in the context of the steep fall in oil prices - the exporters to lose revenue and the importers which could lower their fiscal deficits.

At the same time, in its latest study the Bank projects soft oil prices to persist in 2015 and this would mean significant real income shifts from oil-exporting to oil-importing countries. For many oil-importing countries, lower prices contribute to growth and reduce inflationary, external, and fiscal pressures. Conversely, major oil-exporting countries would be severely impacted by weakening growth prospects and fiscal and external positions.

Of great interest to India is the way countries of the Gulf region adapt themselves to the much-lowered prices and they have to draw from reserves to be able to sustain the high per capita incomes levels of those countries. It is unlikely that the sudden turn in their fortunes would have any immediate adverse effect on employment of expatriates or affect the remittances from over two million Indians working in the region.

Remittance flows, of which India is the principal beneficiary, have been resilent through episodes of growth slowdown or oil price fluctuations. According to the World Bank, these remittances to developing countries have amounted to 60 per cent of FDI flows since 2000. At the household level, these flows help support spending on consumption, education, and health services. At the macroeconomic level, the remittances have remained steady and grown even during episodes of reversal of other capital flows.

In the hydro-carbon energy sector, the challenge for oil companies is to re-draw strategies to cope with the new situation. . Major oil companies worldwide are already planning deferment of investment in new exploration or development of the existing oil/gas fields. As the Bank points out, this would also put at risk investment in some low-income countries, or in unconventional sources such as shale oil, tar sands, and deep sea oil fields.

While low prices have thrown open a significant window of opportunity for importing countries to reform fuel subsidies or energy taxes and improve finances, oil-exporting emerging market economies may encounter negative investor sentiment. The world has already begun to go through a new round of volatility in financial markets which, the Bank says, could trigger capital outflows, reserve losses, sharp depreciations or rising sovereign spreads.

Market instability set in the last quarter of 2014 has continued in the first week of January as investors in US and Europe worry about a prolonged price slump signalling a weaker global economy. Related to these fears, Dow Jones index fell by 300 points on January 5 and the Sensex at home also plunged 855 points on January 6. Deflation threat in EU on negligible growth path is adding to global woes.

The outlook for India that the Budget would unfold, may not entirely be rosy in view of persisting global uncertainties, notwithstanding the gains from low oil prices for them. Export prospects may become weaker, apart from the impending rise in global interest rates (as the US Federal Reserve begins to withdraw monetary accommodation by mid-2015), and fragile financial market sentiment.

An IMF paper on oil prices infers from futures markets that oil prices would rebound but remain below the level of recent years. There is, however substantial uncertainty about the evolution of supply and demand factors as the story unfolds, it says. Risks to financial stability have increased, but remain limited. and pressures on currency have so far been for a few oil exporting countries such as Russia, Nigeria, and Venezuela. (IPA Service)