Weaker rupee bumped up India’s H1 oil import bill by Rs 25,000 crore

India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. Crude oil also tops the list of India’s merchandise imports by value.

While India does not export crude oil, it is a net exporter of petroleum products, thanks to the country’s refining capacity of over 250 million tonnes per annum which exceeds its domestic demand. Like most internationally traded commodities, crude oil and petroleum products are priced in dollars. In the case of oil importing countries, a weakening of their currencies against the dollar inflates their oil imports in local currency terms.

The rupee depreciated by over 9 per cent between early April 2022 and end of September 2023. In the calendar year 2022 (January-December), the Indian currency depreciated by around 10 per cent against the dollar, mainly on account of interest rate hikes and monetary policy tightening by the US Federal Reserve and the Russia-Ukraine war. In fact, in April-September of FY23 alone, the rupee’s value depreciated by around 7 per cent due to the safe haven appeal of the greenback amid fears of recession and inflation globally, and the Ukraine war. Rise in oil prices also tends to push up the value of the dollar as demand for the greenback increases. While prices have been volatile since the war broke out in Ukraine, the extent of volatility and the rise in oil and petroleum product prices was higher in April-September of FY23 than in the corresponding six months of the current financial year.

As per the latest available data with the Directorate General of Commercial Intelligence and Statistics (DGCI&S), India’s crude oil imports in April-September of the current financial year stood at $63.86 billion, or Rs 5.26 lakh crore. This reflects an effective average exchange rate of Rs 82.44 per dollar. In the corresponding six months of FY23, crude oil imports were $83.57 billion in dollar terms and Rs 6.56 lakh crore in rupee terms, reflecting an average exchange rate of Rs 78.49 per dollar for the period. Had the average exchange rate been Rs 78.49 per dollar in April-September of this year as well, the country’s crude oil imports in rupee terms would have been Rs 5.01 lakh crore, lower by over Rs 25,000 crore.

Similarly, the country’s petroleum product imports in the first half of FY24 stood at $18.42 billion, or Rs 1.52 lakh crore, reflecting an effective average exchange rate of Rs 82.46 per dollar. In April-September of last year, petroleum product imports were $23.06 billion, or Rs 1.81 lakh crore at an average exchange rate of Rs 78.56 for a dollar. This suggests that just the depreciation in the rupee’s value inflated the import bill for refined petroleum products by nearly Rs 7,200 crore.

Petroleum product exports, however, benefitted from the depreciation in the rupee’s value. The country’s total petroleum product exports for the first half of FY24 stood at $41.86 billion, or Rs 3.45 lakh crore, at an effective exchange rate of Rs 82.46 per dollar. The average exchange rate for petroleum product exports in the corresponding six months of last year was Rs 78.45 rupees per dollar. Had the exchange remained the same as in the first half of FY23, petroleum product exports in April-September of the current financial year would have been lower by around Rs 16,750 crore.

Therefore, the net impact of the fall in rupee’s value in April-September of FY24 vis-à-vis a year ago on India’s oil and petroleum product trade—crude oil and petroleum product imports and petroleum product exports—was nearly Rs 15,700 crore, the analysis shows.

The impact of rupee depreciation would have hit all Indian refiners depending on their respective refining capacities as all of them mostly depend on imported crude oil. However, the gains due to the weakness in the rupee in terms of petroleum product exports would have mainly benefitted export-oriented private sector refiners Reliance Industries and Nayara Energy. Public sector refining majors Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, and their arms only account for a marginal share in India’s petroleum product exports. The DGCI&S does not give refiner-wise oil and petroleum product trade data.