Last year, when crude prices grovelled at $9 a barrel, the oil import bill plunged to $5.9 billion from $7.39 billion in 1997-98. ``Had we hedged price increases when crude cost less than $9 a barrel, the country's oil import bill could have been Rs 20,000 crore ($5 billion), instead of Rs 42,000 crore ($10 billion),'' sighed an industrywatcher. ``Hedging is only good when prices are low, not when they are sky high at $22 a barrel,'' he added.

Indian Oil Corporation director, finance P Sugavanam thought otherwise. ``How much can you hedge ?'' he asked. As the canalising agency for crude and petroleum products, Indianoil imports close to 60 million tonnes of oil a year.

Sugavanam, incidentally, is among the industry representatives on the committee on ``Risk Management Techniques,'' set up by the petroleum ministry last year. The panel, which has had some meetings lately, is expected to submit its report in October.

Sugavanam quickly points out that the law of the land did not as yet permit futures trading in crude oil or petroleum products in any case. Corporates that deal in as much foreign exchange as Indianoil does (roughly Rs 25,000 crore a year), do indulge in forex hedging tactics, though.

``Even foreign exchange hedging is possible for a portion of imports, not for the whole of imports,'' Sugavanam says, a trifle testily now,adding that the national oil company did not resort to such ``risk management techniques'' either. So, what does the country's canalising agency do ? ``Borrow,'' says Sugavanam. A mix of suppliers' credit and short-term loans in foreign currency, enables Indianoil to minimise its forex spending.

The Rs 69,430 crore-turnover mega corporation funds 83 per cent of its capital expenditure (roughly Rs 10,000 crore a year) out of its internal resources, but it borrows to pay for the oil import bill. Raising credit and short-term loans in foreign currency is the national oil company's way of keeping the country's foreign currency reserves afloat.

It does not help bring down the oil import bill, however. Hedging price fluctuations could only happen when collars and caps and forward trading on commodity exchanges become a reality. Those ``risk management techniques'' are still a long way away.

The Indianoil exercise only ensures that the country's foreign currency levels are not upset by a sudden spurt in theoil bill. Indianoil has a rolling credit with an external commercial borrowing (ECB) limit of close to $3 billion. Last year, when world oil prices were low, the company's overseas borrowings had touched $1.08 billion. The year before, in 1997-98, Indian Oil Corporation's borrowings in foreign currency were more than $2 billion. The company has a $700 million line of credit and is reportedly planning to raise more than $250 million in short-term borrowings. ``We bring in 50 per cent (of the foreign currency requirements) through loans or a line of credit,'' says Sugavanam.

The oil import bill's impact on the country's foreign currency reserves did become a cause for concern earlier this year, when trade statistics revealed that oil made up nearly 15 per cent of the total imports of the country.A group of secretaries, pondering on the balance of payments situation, did wonder what the growing oil import bill would do to the country's trade deficit. The bill for purchasing crude and petroleum products hadgrown to $2.75 billion between April and July, compared to $1.82 billion in the corresponding months of 1998.

The total imports of the country were worth $ 14.07 billion, of which $2.75 billion were spent on crude oil and petroleum products. Just then, the Reserve Bank of India (RBI) set minds at rest by announcing a $1 billion growth in foreign currency reserves during the period, for oil imports had grown, but imports per se had not.