Current account takes heat of rising oil trade gap

Written by Raj Kumar Ray | New Delhi | Updated: Jan 2 2013, 06:43am hrs
Despite an economic slowdown, Indias crude oil import bill grew 11% during April-October, thanks to a somewhat steady rise in domestic consumption amid falling local production. Although import growth was much slower than the previous years 46%, it exerted a more negative impact on the current account as export of petroleum products fell by over 9% in the current fiscal.

Exports are roughly a third of imports at present.

It is not that the slowdown hasnt impacted oil imports. Oil imports growth, in quantity terms the closer proxy of demand has declined since 2009-10. What kept the import bill relatively high is also a decline in domestic output, where growth has turned negative since October 2011, increasing reliance on imports.

A weak rupee has bloated the import bill too as the quantity has remained 15.5-16.5 million tonnes a month till November this fiscal. According to petroleum ministry data, during 2011-12, oil imports have risen just 3.5% on-year to 186.73 million tonnes, almost the same as 3.7% rise in 2010-11 but lower than 14.9% in 2009-10. The economic growth had started sliding from 8.4% in 2010-11 to 6.5% in 2011-12 and 5.4% in first half of this fiscal year.

Commerce ministry data giving value show oil imports stood at $96.4 billion during April-October this year while petroleum products exports were $30.26 billion. During 2011-12, oil imports rose 46.2% to $155 billion while fuel product exports too grew at a scorching pace of 34% to around $56 billion.

The new trend in fuel export and import is worrisome as it would keep the current account deficit high and strain government finances in the coming months, analysts said.

Global oil prices is still a risk. In the short run, the CAD will remain high. We expect CAD to remain near 4% in FY13. If the government implements the R1 a month hike in diesel prices, the oil import bill may be limited, said DK Joshi, chief economist of Crisil.

Until 2011-12, a spurt in global oil prices had bloated the import bill and at the same time, helped in boosting exports as private companies like Reliance Industries realised higher value for the refined petroleum product exports. This trend has reversed in 2012-13.

Consumption of oil is directly proportional to economic growth without exception. If crude oil imports are growing, it may have got something to do with the recent rebound in industrial production, probably higher inventories of crude oil kept by refiners and the trends in domestic oil production, said Kalpana Jain, senior director, Deloitte.

Data from the oil ministrys analysis wing showed that both domestic consumption and the net imports of oil have been growing, suggesting the countrys import dependence of oil is actually rising.

Industrial output rebounded with an 8.2% growth in October compared to a 5% contraction in the same month a year ago boosting domestic hunger for energy.

In contrast, exports of petroleum products have grown by a measly 3% to 60.84 million tonnes during 2011-12 compared with 15.8% in 2010-11 and 31% in 2009-10 as global uncertainties curbed overseas demand. This year, exports have been rising from 4.05 million in April tonnes to 6.3 million tonnes in November but receding global prices have cut the realisation for exporters in dollar terms.

India imports almost three-fourths of the fuel it consumes and it contributes more than a third of the countrys import bill while fuel products contribute 18% to the overall exports. Net imports the difference between oil imports and fuel product exports stood at $66 billion in the first eight months of 2012-13, compared with $99.3 billion in all of 2011-12 and $64.5 billion in 2010-11.

The main reason behind higher oil imports is a continuous decline in the domestic crude and gas output. Indias crude output has fallen in 11 out of the 13 months since October 2011, while natural gas has been declining since December 2010.

In contrast, refinery throughput has been growing except for a few months of fall during the same period, which means reliance on imports have gone up to meet domestic demand. Petroleum ministry data show fuel sales are growing steadily as the country increases consumption especially of subsidised diesel, kerosene and LPG.

Overall fuel sales have grown 5% on-year to 148 million tonnes during 2011-12 diesel sales were up 7.8%, petrol (5.6%) and LPG (7.2%). Sales of diesel and petrol have picked up in recent months.

The current account deficit widened considerably to 5.4% of GDP in July-September from 3.9% in previous quarter and 4.2% in the second quarter of last year.