India's crude oil import bill set to breach FY21 tally, say experts

Import bill likely to be a three-year high

The crude oil import bill of India is set to cross last year’s level this month, with crude oil prices firming up and demand recovering. According to sector watchers, the oil import bill is on the path to be the highest in at least three years as the average price at which refineries purchased the raw fuel crossed $70 a barrel in 10 months to October. The Indian basket of crude oil averaged $82.11 per barrel in October — the highest price for the month in five years.

While crude oil prices have softened to $78.89 per barrel after the Joe Biden administration’s decision to tap into the American strategic reserves, they were back to above $82 per barrel the following day. With these developments, India’s oil import bill could easily be close to double last year’s in 2021-22 (FY22).

According to the data from the Directorate General of Commercial Intelligence and Statistics, Iraq continues to remain the top supplier of crude oil to India till September. This trend is expected to continue.

India imported 118.5 million tonnes (mt) of crude oil from April-October, costing the exchequer $61.1 billion. Comparably, India had imported 104.6 mt of crude oil from April-October 2020, leading to an import bill of just $26.9 billion. For 2020-21 (FY21), the import bill stood at $62.2 billion — a number that will be breached this month.

“The trend of an annual crude oil import bill of around $110 billion is a reversal of the earlier years. The movement is on expected lines, with the import bill comfortably breaching the full year figure of FY21 in November itself,” said Prashant Vasisht, vice-president and co-head-corporate ratings at ICRA.

This is because the Indian basket of crude oil had averaged at $71.56 a barrel in the first seven months of FY22, up from $37.24 a barrel in the same months of FY21. The rupee is also weaker than the last three fiscal years, averaging Rs74.05 against a dollar till October.

Further commenting on the import bill and the causes for the higher foreign exchange outgo, Vasisht said, “FY21 was an aberration due to the Covid-19 pandemic lockdowns, followed by stunted demand for crude oil and its products. There was also a slump in the last few months of 2019-20, pulling down crude oil prices.”

Crude oil prices are expected to remain higher for the rest of FY22 as well. “Now even if the Organization of the Petroleum Exporting Countries Plus claims to increase crude oil output, all will not be able to adhere to ramped-up goals. This will mean extended pressure on crude oil supplies, keeping prices higher,” added Vasisht.