Given the lack of crude oil demand by Indian refiners, it is estimated that daily imports of crude oil will fall to 4.14 million barrels in FY21 from 4.5 million barrels per day in FY20.
India’s oil imports are estimated to fall by 8.9 per cent during the current fiscal year, which may save the government’s expenditure by a significant margin. Given the lack of crude oil demand by Indian refiners, it is estimated that daily imports of crude oil will fall to 4.14 million barrels in FY21 from 4.5 million barrels per day in FY20, said a report by Care Ratings. More than 80 per cent of India’s oil consumption is met through imports and thus oil imports hold a large share in the country’s overall imports, hence, a cut in imports will help bringing down the import bill substantially.
Also, cheap oil prices in the international market are further expected add to the benefits. It is expected that a dollar increase or decrease in prices of crude oil would affect the import bill by nearly USD 1.5 billion per annum. On the back of an economic slowdown, India’s crude oil import bill had come down by 8.7 per cent during the last fiscal to USD 102.2 billion. Cutting down excess dependence on international crude oil prices, the country has also filled its strategic reserves to full capacity. The government claimed that it has saved Rs 5,000 crore in foreign exchange while strengthening its energy security by filling the reserves.
Inflation may drop with low and cheap imports
Apart from the government, common people are also expected to gain from decreased oil imports as inflation goes down with a fall in oil imports. Crude oil and its products have a weight of 10.36 per cent in the WPI. Therefore, any change in the price of crude oil would tend to impact the wholesale inflation number in proportion, the Care Ratings report added.
Gain for government, pain for consumers
Meanwhile, the government is collecting around 270 per cent taxes on the base price of petrol and 256 per cent in the case of diesel. With the sudden fall in crude oil prices, the government had increased the central excise duty of petrol and diesel twice in the last three months but now with the recovery in oil prices, the price of petrol and diesel is not expected to come down, the report underlined. The government is relying on the recovery of fuel demand to aid in filling the government’s coffers and the government has never passed on the full benefit of the soft crude prices to the consumers, it further added.