The country's fiscal deficit, as a percentage of GDP, would be wiped out if the crude oil price, as measured with the Indian basket, touch $80 per barrel.

In contrast, if the crude oil prices were to average $55 per barrel, revenue buoyancy would get evened out.

This paradox is of particular relevance to the Indian situation, where government imposes heavy taxes on consumption of some petroleum products, while subsidising others.

Falling crude oil prices lead to lower excise collections, lower royalty, lesser collections from the cess on domestic production, lower dividends and taxes from state-owned oil companies.

The average price of the Indian basket of crude oil for the fiscal year beginning April 1, 2006 - up till February 16, 2007 - stood at $62.8 per barrel.

The basket price touched the highest level of $75.20 per barrel on August 8, 2006, subsequently dipping to $49.85 per barrel on January 17 this year. The average price in the month of January was $52.53 per barrel and $55.5 till February 16 this year.

In effect, the recent trend has been towards lower crude oil prices, a situation, which is expected to continue till the next fiscal, provided there are no external supply shocks triggered by supply side disruptions.

The Indian crude oil basket is based on the total industry processing of sweet and sour crude oil and represents free on-board prices of average Oman/Dubai crude oil for sour and Brent for sweet grade in the ratio of 59.8:40.2.

The average Indian basket price of crude oil for 2005-06 was around $55 per barrel. At this price, the contribution of the petroleum sector to the central exchequer was nearly Rs 87, 647 crore (as per 2005-06 figures).

As per some research estimates, if the price were to increase to $80 per barrel, assuming everything else remains constant, the contribution to the central exchequer would increase to over Rs 1,30, 412 crore (Rs 1304.12 billion).

This would mean the fiscal deficit would be lower by Rs 42,765 crore (Rs 427.65 billion). If the price were to fall to $22 (it was $26.65 in 2002-03 and $27.97 in 2003-04), the contribution to the central exchequer would fall to around Rs 34,000 crore (Rs 340 billion).