Reliance on oil imports rises in April-February, likely to hit fresh full-year high in FY24

Given India’s rapidly growing energy demand, reliance on oil imports has been rising continuously over the past few years, except for FY21, when demand was suppressed due to the COVID-19 pandemic. Reliance on imported crude to meet domestic demand stood at 85.5 per cent in FY22, 84.4 per cent in FY21, 85 per cent in FY20, and 83.8 per cent in FY19.

The government wants to reduce India’s extreme reliance on imported crude oil but sluggish domestic oil output in the face of incessantly growing demand for petroleum products has been the biggest roadblock. In 2015, the government had set a target to reduce reliance on oil imports to 67 per cent by 2022 from 77 per cent in FY14, but the dependency has only grown since. Heavy reliance on imported crude oil makes the Indian economy vulnerable to global oil price volatility, apart from having a bearing on the country’s foreign trade deficit, foreign exchange reserves, rupee’s exchange rate, and inflation.

Source: PPAC

Cutting costly oil imports is also a fundamental objective of the government’s push for electric mobility, biofuels, and other alternative fuels for transportation as well as industries. Over the past few years, the government has also intensified efforts to raise domestic crude oil output by making exploration and production contracts more lucrative and opening vast acreages for hydrocarbon exploration. While there has been a pick-up in electric mobility adoption and blending of biofuels with conventional fuels, it is not enough to offset petroleum demand growth.

The calculation of the extent of import reliance is based on the domestic consumption of petroleum products and excludes petroleum product exports as those volumes do not represent India’s demand. With a refining capacity of a little over 250 million tonnes per annum, India—the world’s third-largest consumer of crude oil and also one of its top importers—is a net exporter of petroleum products.

India’s domestic consumption of petroleum products in April-February rose over 5 per cent year-on-year to 212.2 million tonnes, underscoring robust demand, particularly for transportation fuels petrol and diesel. However, domestic crude oil production for the year was nearly flat at 26.9 million tonnes. Crude oil imports in the first 11 months of FY24 rose 0.4 per cent year-on-year to 212.6 million tonnes. Additionally, petroleum product imports increased to 43.8 million tonnes from 40.2 million tonnes a year ago. Petroleum product exports in April-February rose 4.2 per cent to 57.3 million tonnes.

Total production of petroleum products from domestic crude oil was 26.1 million tonnes in April-February, which means that the extent of India’s self-sufficiency in crude oil was just 12.3 per cent, down from 12.8 per cent in the corresponding period of the last financial year. In FY23, consumption of petroleum products sourced from indigenous crude oil was 25.8 million tonnes, while total domestic consumption was 201.8 million tonnes.