India May Face Steep Increase in Crude Oil Import Bill Current Fiscal

India’s crude oil import bill could jump a quarter in 2017-18 on estimates of higher average oil rates after a price collapse sharply brought down payments in the previous two years.

The value of crude import could rise to $88 billion this year from $70 billion in 2016-17, according to the oil ministry’s estimate. In rupee terms, it could rise 22% to Rs 5.75 lakh crore. The estimate assumes crude at $55/barrel and an exchange rate of `65 for a dollar for 2017-18.

In April and May this year, Indian basket of crude came for $52.49 and $50.57, respectively.

Crude import bill had sharply shrunk in 2015-16 to Rs 4.16 lakh crore, the lowest since 2009-10. The average price of Indian basket of crude in 2015-16 was $46.17/barrel, the lowest since 2004-05. The import bill rose to Rs 4.7 lakh crore in 2016-17, when crude had marginally risen to $47.56. In volume terms, the crude import is estimated to rise 2.7% to 219.7 million metric tonnes this fiscal year.

In 2016-17, crude import rose 5.4%. The import has been rising for years as local production fails to match expanding consumption. Fuel consumption rose 5.2% in 2016-17. In May, fuel consumption rose 5.4% to 17.79 million tonnes. Demand for diesel, which makes up nearly 40% of total sales, went up 8% and that of petrol 15%. Total consumption had risen 3.3% in April after falling for three months. India imports more than 80% of its crude oil requirement and a price collapse since mid-2014 has been a gift to the exchequer.

The share of petroleum in the country’s total import has fallen to 21.1% in 2016-17 from 35.5% in 2013-14. Lower oil imports mean lesser drain on the country’s limited foreign exchange reserves.

By barely passing on the benefit of lower crude prices to Indian consumers, the government has also gained immensely in terms of higher taxes on oil products. Taxes comprise 55% of the retail prices of petrol and 47% of diesel.

A supply glut has kept crude prices low for three years and conventional producers’ attempts to push up prices haven’t helped much. Last month, the Organisation of Petroleum Exporting Countries (OPEC) and other key producers agreed to extend the agreement to cut production by 1.8 million barrels per day. But this didn’t support prices much.