As per recent numbers on oil trade, the country's oil import bill has risen to $24.7 billion in the April-June quarter 2021-22, a whopping growth of over 190 per cent over $8.5 billion worth of imports made in Q11 of the last fiscal year FY21.
And the high growth in oil bill during the first three months may just be the beginning as crude is set to get more expensive in coming months with a rise in global demand and falling inventory levels of the US.
This despite the oil cartel OPEC agreeing to raising crude production by 400,000 barrels per day stating August to increase production by 2 million barrels a day by the end of the year.
"The way the oil market is giving signals now, crude may remain range bound between $70-75 a barrel this fiscal. This could add significant jump in the country's oil import bill as average crude oil purchase price stood at mere $45 a barrel in FY21 and May be above $70 a barrel in FY22," an oil sector expert from one of the four largest global consultancy firms said on the condition of anonymity.
If the projections for average crude prices to be over $70 a barrel in FY22, the country's oil import bill could once again shoot above the $100 billion mark. It last remained at that level in FY20 at $101.4 billion.
The government received big advantage of softer oil prices in the pandemic hit FY21 when it had to pay just $62.7 towards oil import bill with overall import quantity also sliding with demand as lockdowns eroded demand. This also helped the government to raise level of taxes on auto fuels petrol and diesel and earnings from there contributed significantly towards Covid-19 relief and stimulus measures that the Centre announced in FY21.
The problem of higher imports at expensive prices is already becoming real this year. The first quarter over 190 per cent growth in import bill is based on average crude price of $67.5 a barrel. If the projections for crude at $70 a barrel stays, the import bill will be even higher in Q2 and the remaining months of the year.
The price of brent crude averaged $73.04/bbl during June, 2021 as against $68.75/bbl during May 2021 and $40.07/bbl during June 2020. The Indian basket crude price averaged $71.98/bbl during June 2021, as against $66.95/bbl during May 2021 and $40.63 /bbl during June 2020.
A $1 increase in crude oil prices increases India import bill by almost Rs 3,000, while one rupee fall in value of the currency against dollar raises spending by around Rs 2,700 crore.
While India imported $112 billion crude oil in FY19 and $101 billion in FY20, its import bill had transited substantially lower in the previous three financial years with oil import bill standing at $64 billion in FY16, when oil slipped on oversupply, especially with the entry of US shale oil.
In the subsequent two years (FY17 and FY18) as well, oil import bill stood below $100 billion mark at $70 and $88 billion respectively.
It again rose to $112 and $101 billion in FY19 and FY20, respectively, and falling to just $62.7 billion in FY21 as crude prices had crashed to historic low levels in early pet of the year.
Lower volume of crude processing by refiners is also expected to have an impact on the import bill.
For India, lower oil prices act as big incentive as the country depends on imports to meet 86 per cent of its requirements. Lower import bill will also have positive impact on the country's fiscal deficit that has slipped from earlier targets in the wake of higher government expenditure this year to curb falling GDP growth.
The dependency on 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, and close to 85 per cent in FY20 and 84.4 per cent in FY21.
In Q1 FY22 this has increased again to 85.7 per cent. It means we are producing less and depending more on imports to meet our needs.