Rising oil import bill swells current account deficit
The recent surge in crude oil prices along with a nosediving rupee is likely to jack up India’s oil import bill by over 42 percent to more than US$125 billion in fiscal year (April-March) 2018-19.
“At the beginning of the financial year we had estimated the crude oil import bill to be around USD 108 billion (INR 7.02 lakh crore) at an average crude oil price of US$ 65 per barrel and an exchange rate of Rs 65 per dollar,” said an official at the ministry of petroleum and natural gas.
“But to our dismay the prices have risen close to US$80 per barrel and stayed high for months, as the rupee has nosedived consistently, currently hovering at around INR73:US$1. If the situation persists as it is through the rest of the ongoing fiscal year, the country will end up paying an oil import bill of over US$125 billion (Rs 881.282 crore)”, he said.
“The import bill of crude oil is estimated to increase by 42 per cent from US$88 billion in 2017-18 to US$125 billion in 2018-19 considering the Indian basket crude oil price of US$77.88/bbl and exchange rate of INR72.22:US$1 for the balance part of the year,” Petroleum Planning and Analysis Cell (PPAC), the oil ministry’s technical arm, said in a report.
In volume terms, the country’s crude oil imports are set to rise 3.72 per cent to 228.6 MT in the current fiscal from 220.4 MT last financial year. Data shows crude oil import bill during the first six months (April-September) of the current fiscal had increased 56.11 per cent to $58.7 billion. In volume terms, the oil imports rose 5.80 per cent to 113 million tonnes (MT).
Before this, the highest peak of annual crude oil imports for India was witnessed in 2013-14 when the Indian basket of crude oil averaged $105.52 per barrel. The country had imported 189.23 MT of crude oil then, valuing around Rs 864,875 crore.
Energy-deficient India imports around 82 percent of oil and 50 percent of natural gas to power its economic growth. In the 2017-18 it imported. India paid US$ 87.7 billion (Rs 5.65 lakh crore) to importing 220.43 million tonnes of oil. In 2018-19 the volume is poised to rise to 227 million tonnes in line with the increased growth.
The sharp rise in the country’s crude oil bill led to its trade deficit widening to a 62-month high in July, which increased to US$18.02 billion, up from US$16.61 billion in June.
Credit rating agency Moody’s Investors Service on Wednesday said that higher oil prices and robust non-oil import demand might widen the CAD to 2.5 per cent of the gross domestic product (GDP) in the current fiscal year, from 1.5 per cent in the previous fiscal.
Reserve Bank of India (RBI) in its annual report today said that elevated crude oil prices and strengthening of domestic demand would push up the import bill.
“With India being a net energy importer, the changing demand-supply dynamics in the international crude oil market may impact heavily on India’s trade deficit,” RBI said.
The apex bank said that the headline inflation averaged 4.8 per cent during the first quarter ended June 2018 and was likely to face upside risks over the rest of the year from a number of sources, warranting continuous vigil and a readiness to head off those pressures from getting generalised.
“On the whole, headline inflation is projected at 4.6 per cent in Q2 of 2018-19; 4.8 per cent in H2 and 5 per cent in Q1 of 2019-20, including the HRA impact for central government employees, with risks evenly balanced,” Reserve Bank of India said in its annual report.
Moody’s also cautioned that India might breach the 3.3 per cent fiscal deficit target for the current financial year, primarily due to higher oil prices, which would add to short-term fiscal pressure.
“Higher oil prices add to short-term fiscal pressures, following cuts in the goods and services tax on some items and relatively high increases in minimum support prices for some crops. We see risks that the deficit will be wider than budgeted,” Moody’s said.
The 2018-19 Union Budget had allocated Rs 24,933 crore as petroleum subsidy for the current financial year, a mere 2 per cent increase over the Revised Estimate of Rs 24,460 crore allocated in the last financial year.
Moody’s had earlier said that the surge in international oil prices would result in the country’s petroleum subsidy ballooning to Rs 53,000 crore, and would out pressure on fiscal deficit.
The government has budgeted fiscal deficit to be at 3.3 per cent of GDP for the current fiscal year.
