Oil ministry targets forex savings of $22 bn in FY14

This will mean cutting CAD to 3.7% of the GDP in 2013-14 from the record 4.8% last year

With the rupee scaling fresh lows, the ministry of petroleum and natural gas is targeting savings of $22 billion this financial year on foreign exchange outgo, to contain the country’s current account deficit (CAD).

Petroleum Minister M Veerappa Moily said on Tuesday Prime Minister Manmohan Singh had asked the ministry to save at least $25 billion by March 2014.

“We are going to unveil a master plan in this regard by September 16 on ways to save forex outgo. The savings that I have planned is around one per cent of the country’s GDP (gross domestic product),” Moily said on the sidelines of an  event here. One of the major steps would be an increase in crude oil imports from Iran, as India pays that country in rupee terms. For imports from Saudi Arabia and other countries, India pays in dollar.

The ministry plan falls in line with Prime Minister's Economic Advisory Council chairman C Rangarajan’s statement that the country may be able to contain CAD at $70 billion this financial year, from $88 billion during the previous financial year. This will mean cutting CAD to 3.7 per cent of the GDP in 2013-14 from the record 4.8 per cent last year.

While India imported more than $160 billion worth of crude last financial year, the net import bill came down to $98 billion because of product exports. According to petroleum ministry officials, the plan would be to save about $10-12 billion through payments of Iran crude oil on rupee terms. The thumb rule would be $1 billion savings for 1 million tonne (mt) of Iran imports.

Due to the US and European Union sanctions, India was paying to Iran in rupee terms through UCO Bank. “There can be some savings through inventory management and also through the ethanol blending programme of petrol,” a senior petroleum ministry official said.

Compared with 18.5 mt in 2010-11, the imports from Iran came down to 17.4 mt in 2011-12 and around 13 mt in 2012-13. Though Mangalore Refinery and Petrochemicals Ltd (MRPL), a subsidiary of Oil and Natural Gas Corp, and Hindustan Petroleum Corp Ltd (HPCL) stopped importing Iran crude since April due to insurance woes, MRPL has restarted it this month. With the finance ministry and oil ministry backing in place, other players like HPCL are likely to follow suit.