In the oil sector, the global health emergency posed by the spread of the novel coronavirus is coming to India's advantage. The severe demand squeeze brought by the pandemic has ensured that India does not have to cut down on its oil imports. It has also sharply reduced the import bill due to low global oil prices.

After falling consistently since April, India's oil imports have fallen about 36.6 percent (YoY) to about 12.3 million tonne in July, the lowest level in over a decade.

In terms of value, the July oil imports stand at $3.8 billion, a sharp 57.77 percent drop in dollar terms compared to $9 billion in July 2019.

Oil imports has been consistently coming down since April when it fell to 16.55 million tonne, a decline of 16 percent year-on-year, from 17.28 million tonne reported earlier. Similarly in May, crude oil imports fell by 22.6 percent, the biggest drop since at least 2005, to 14.61 million tonne as compared to a year ago. In June as well, crude oil imports fell about 29 percent (YoY) to about 13.44 million tonne, the lowest level since October 2011.

If this trend is maintained, India's import of crude in FY21 can fall to 180 million tonne, a sharp 50 million tonne lower than 227 million tonne the country imported in FY20. The value of this 59 million tonne at current prices itself will be close to $20 billion.

Moreover, India will further reduce its oil import bill by virtue of oil prices remaining low or the range will bound around $35-$45 a barrel in FY21.

Assuming an average $40 a barrel crude oil price and rupee-dollar prices holding closer to current levels, and monthly imports remaining low at an average of 15 million tonne, for FY21, the import bill could slip to 60 percent of last year's level at $60-$65 billion.

This low level of import bill was witnessed in FY16 when crude had fallen to $26 a barrel for some time.

India has already cut down its oil import bill by around 60 percent in the first quarter of the current fiscal. Oil imports in April-June 2020-21 were $13.08 billion (Rs 99,259.42 crore) which was 62.47 percent lower in dollar terms compared to $34.85 billion (Rs2,42,398.55 crore), over the same period last year.

According to the oil ministry's Petroleum Planning and Analysis Cell (PPAC), the country's oil imports stood at around 227 million tonnes (mt) in FY20 against 226.5 mt in FY19. The import bill last year was $101.4 billion as against $111.9 billion in fiscal FY19.

A one-dollar fall in crude oil price results in reducing the country's import bill by almost Rs 2,900 crore while a rupee fall in value of currency against the dollar results in increased spending by up to Rs 2,700 crore.

While India imported crude oil worth $112 billion in FY19, its import bill has transited substantially lower in the previous three financial years with the oil import bill standing at a mere $64 billion in FY16 when oil prices slipped on over supplies, especially with the entry of US shale oil.

Lower volume of crude processing by fuel refiners is also expected to have an impact on the import bill.

For India, lower oil prices act as a big incentive as the country depends on imports to meet 86 percent of its oil requirements. A lower import bill would also have a positive impact on the country's fiscal deficit that had already slipped from earlier targets in the wake of higher government expenditure this year to curb falling GDP growth.

The dependency of imported crude (on consumption basis), on the other hand, has increased from 82.9 percent in FY18 to 83.7 percent in FY19 and 85 percent in FY20, 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.
(IANS)