New Delhi: At least in the oil sector, the global health emergency caused by coronavirus is coming to India's advantage. While the relatively lower global prices helped the government boost its revenues by increasing duty on auto fuels, the demand squeeze due to the pandemic and softer crude prices could help it further by sharply reducing the import bill that may fall to decade-low levels of $60 billion in FY21.
Declining consistently since April, India's oil imports fell 18.14 per cent (YoY) to around 122.7 million tonnes (MT) in April-November period of FY21 as compared to 129.9 MT in the same period last year.
In value terms, the April-June oil imports stood at $32.4 billion, down 53.44 per cent in the dollar terms from $69.6 billion in April-November of FY20.
With international crude prices hovering lower than the levels prevailing in December last year by almost $15 a barrel and average crude prices in January-March period expected to remain at the same levels of the previous fiscal, India's import bill could fall below $60 billion in FY21, the lowest level in last decade.
A similar import bill was witnessed in FY16 when crude had fallen to $26 a barrel for some time.
The lower import bill will come even if oil imports remain at the same levels of last year. In FY20, India imported 227 MT of crude. This year, till November, crude import stands at 122.7 MT. It means that even if monthly crude imports stands at regular levels of around 20 MT, the FY21 import figure will be lower than last year.
This would mean an import bill of just around $25-30 billion in the December-January period, keeping the overall import bill at around $60 billion.
According to the Petroleum Planning and Analysis Cell (PPAC) of the Petroleum Ministry, imports stood at around 227 million tonnes in FY20 against 226.5 mt in FY19. The import bill last year was $101.4 billion against $111.9 billion in FY19. The oil imports this year (FY21) till November have been 122.7 MT and the import bill has been a mere $32.4 billion.
A $1 fall in crude oil prices helps India reduce import bill by almost Rs 2,900 crore, while one rupee fall in value of the currency against dollar raises spending by around Rs 2,700 crore.
"After an unprecedented 25 per cent crash in demand due to Covid in March 2020, crude demand has bounced back smartly but yet to reach pre-pandemic levels. If the vaccine works out as planned, demand will stabilise globally, led by consumption by China and India," said Debasish Mishra, partner at Deloitte Touche Tohmatsu.
While he did not provide what this would mean to oil imports in the balance period, another analyst said that level of imports this year would be lower than last year while the import bill will fall sharply as oil is unlikely to show big volatility and remain range-bound around $ 45-55 a barrel over next few months.
While India imported $112 billion crude oil in FY19, its import bill had transited substantially lower in the previous three financial years, standing at $64 billion in FY16, when oil slipped on oversupply, especially with the entry of US shale oil.
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 a big incentive as the country depends on imports to meet 86 per cent of its requirements. A 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. It means we are producing less and depending more on imports to meet our needs.
(Subhash Narayan can be contacted at firstname.lastname@example.org)