High demand, stagnant domestic output pushes up India’s reliance on imported crude oil

The reliance on imported crude in April-December was marginally higher than the previous fiscal’s 87.4 per cent, which was the highest ever in a financial year. If the trend seen so far in the ongoing fiscal holds, oil import dependency could hit yet another fresh high this year. In FY22, dependence on imported crude was 85.5 per cent.

Even as the government wants to reduce India’s high dependency on imported crude oil, sluggish domestic oil output in the face of steady growth in domestic demand has led to reliance on imports rising over the years. In early 2015, the government had set a target to reduce reliance on oil imports to 67 per cent by 2022 from 77 per cent in 2013-14, 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, the rupee’s exchange rate, and inflation.

Cutting costly oil imports is one of the key objectives of the government’s push for electric mobility, biofuels, and other alternative fuels for transportation and 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 oil and gas exploration. However, oil imports continue to grow, mainly because domestic oil production has remained stagnant while the demand for fuels and other petroleum products has been on the rise. There has been a pick-up in electric mobility adoption and blending of biofuels with conventional fuels, but not enough to offset rising petroleum demand.

At 172.9 million tonnes, the volume of India’s oil imports in the first nine months of FY24 was a tad higher than 172.3 million tonnes in the year-ago period, as per the Petroleum Planning & Analysis Cell (PPAC) of the oil ministry. However, domestic consumption of petroleum products for April-December increased to 172.7 million tonnes from 164.6 per cent a year ago. The country’s domestic crude oil production in April-December declined marginally to 22 million tonnes from 22.1 million tonnes a year ago.

The computation of import dependency is based on the domestic consumption of petroleum products and excludes petroleum product exports as those volumes do not represent India’s demand. Petroleum product exports in April-December rose to 46.2 million tonnes from 45.4 million tonnes a year ago.

Total production of petroleum products from indigenous crude oil in the first three-quarters of FY24 was 18.9 million tonnes, which translates to a self-sufficiency level of 12.5 per cent. In the corresponding nine months of the last fiscal, petroleum product production from domestic crude was 18.8 million tonnes and the self-sufficiency level stood at 13 per cent.

With a refining capacity of nearly 254 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. The export of crude oil from India, however, is not permitted.

Even as the dependence on imported oil rose year-on-year in April-December, India’s oil import bill declined 21.2 per cent year-on-year, primarily due to relatively lower prices of crude oil in the international market. In April-December of FY23, India’s oil import bill was $124.9 billion, while in the first nine months of the current fiscal, it was $98.4 billion.

India’s import of discounted Russian oil in large quantities has also played a role in savings on oil imports. Indian refiners started snapping up Russian oil after the war in Ukraine broke out. Moscow started offering discounts to willing buyers as Western buyers started shunning its oil following its February 2022 invasion of Ukraine.