In a sign that slowdown in the Indian economy may be long drawn, a government report has projected a modest 3.5 per cent growth in oil imports this year. Considering that India imports more than 80 per cent of its oil requirements, slow growth in imports signals tepid demand and consumption.
According to Oil Ministry's Petroleum Planning and Analysis Cell (PPAC), country's oil imports is projected to rise to 233 million tonnes (mt) in FY 20 against 227 mt in FY19, a growth of mere 6 mt.
While slower growth in oil imports is good news for exchequer in terms of keeping the high oil bill under check, it also signals that less crude will be processed by Indian refineries as there would be less consumption of products such as petrol, diesel and ATF, indicating pressure points in the economy.
After showing improvement in early part of 2018, Indian economy has again showed signs of a slowdown in the third quarter of FY19 registering a GDP growth of 6.6 per cent. This has led to overall growth projection for FY19 being downgraded to 7 per cent from earlier 7.2 per cent. International agencies have also brought down growth projections for FY20 to 7.3 per cent level.
"While lower oil import growth cuts India's oil import bill and helps it manage the current account deficit (CAD), this would be a factor of prevailing oil prices. If crude prices jump following tension in the Gulf, a cut is supplies from Iran and Venezuela and production slowdown by OPEC countries, it could add further pressure to a slowing economy," said a former member (energy) Planning Commission, asking not to be named.
Against projected crude oil import of 233 mt, the country's import bill is expected to settle just around $113 billion in FY20. This is growth of a mere $ 1 billion over oil import bill of $ 112 billion in FY19. But the projection by PPAC is based on average price of Indian basket crude oil at $ 66 per barrel and average exchange rate for Rs 71 per dollar. Crude has remained above this level for most parts of current fiscal and is expected to settle well over average of $ 70 a barrel in FY20. This could disturb the initial calculations done by PPAC.
Apart from crude, petroleum product imports (largely comprising petrol and diesel) have also remained tepid. Product import has, in fact, fallen to 32.5 mt in FY19 as against 35.5 mt in FY18. Also, worrisome is petroleum product exports, which have fallen to 61.1 mt in FY19 from a high of 66.8 mt reached in FY18. With a surplus refining capacity, India is a net exporter of petroleum products. But with international markets also witnessing a slowdown, product exports have been hit.
In terms of petroleum product's share in country's overall exports, the number, however, has improved marginally from 11.5 per cent in FY18 to 11.6 per cent in FY19. The dependency of imported crude (on consumption basis), on the other hand, has increased from 82.9 per cent in FY18 to 83.7 per cent in FY19, meaning we are producing less oil and depending more on imports to meet domestic requirements. This dependency has consistently increased in all five years of the Modi government.
Crude production in India has stagnated around 35 mt for past decade. In FY19, domestic crude production has dropped to 34.2 mt from 35.7 mt in the previous year. Despite best efforts of the government, domestic oil production has not increased. Government has now pinned hope on its new Hydrocarbon Exploration Licensing Policy (HELP) that institutes an open acreage policy to see more investment in the country's exploration, thereby increasing the production in the coming years.
(Subhash Narayan can be contacted at email@example.com)
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