India’s oil import bill could rise to $101-104 billion in FY25, says ICRA report

New Delhi: India's net oil import bill could touch $101-104 billion in FY25 if the current low discounts on purchases of Russian crude persist, ICRA said in its report on India’s oil imports. The projected increase from $96.1 billion in FY24 suggests higher expenditure on oil imports, assuming an average crude oil price of $85 a barrel, it said.

This could hamper the economy by widening the current account deficit (CAD), potentially leading to higher inflation and fiscal deficits if not managed effectively. ICRA forecasts the current account deficit (CAD) will widen to $44-46 billion in FY25 (-1.2% of GDP) from $29-30 billion in FY24 (-0.8% of GDP). A $10-a-barrel increase in the average crude oil price for the fiscal year could push up net oil imports by $12-13 billion, enlarging the CAD by 0.3% of GDP, it said.

The rating agency said any escalation in geopolitical tensions leading to a rise in crude oil prices could further hamper India's economy as higher crude oil prices have adverse implications for the fiscal deficit, given that they increase the government's subsidy burden, particularly for items such as kerosene and LPG. A rise in crude oil prices would also increase the retail prices of petrol, diesel and aviation turbine fuel (ATF), which would also effect GDP growth.

Savings from Russian oil

However, the ICRA report highlighted that the increase in discounts on purchases of Russian crude oil has led to substantial savings for India's oil import bill. These savings soared to $7.9 billion in the first 11 months of FY24, up from $5.1 billion in FY23, clocking remarkable 54.9% growth.

Changes in crude oil prices are expected to show up faster in the wholesale price index (WPI) than in the consumer price index (CPI) owing to the different weights in these indices. “For every 10% increase in crude oil prices, WPI inflation is projected to rise by 80-100 basis points, whereas CPI inflation is expected to increase by 20-30 basis points, provided that the transmission into retail selling prices of petrol and diesel occurs," the ICRA report said.

During April-February of FY24, India's overall oil import volumes stood at 278 million tonnes, a 1.5% increase from 274 million tonnes in the same period of FY23. This growth was primarily driven by higher import volumes for petroleum products, as crude oil volumes fell marginally by 1% to 210 million tonnes.

Also read: India's oil imports from Russia drops 19% in February, Saudi Arabia 2nd largest supplier

According to an ICRA report based on data from the ministry of commerce and industry, the value of India's oil imports fell by 15.2% year-on-year to $162.4 billion during April-February of FY24. This decrease could be attributed to a combination of factors, including a reduction in international crude oil prices and savings from the purchase of discounted Russian crude oil.

After Russia invaded Ukraine in February 2022, Western countries cut Russian oil imports and imposed a limit on the amount of revenue Moscow could earn from selling oil elsewhere. However, India's imports of crude petroleum from Russia rose sharply. 

In terms of volume, Russia's share in India's oil imports rose significantly from 2% in FY22 to 21.5% in FY23 and 36.1% in the first 11 months of FY24. In contrast, the share of crude petroleum imports from West Asia decreased from 34% in FY22 to 30.9% in FY23 and 23.3% in the first 11 months of FY24, the ICRA report said. The share of imports from other regions such as Africa and America remained relatively stable in the first 11 months of FY24 compared to FY23, it added.

Also read: India's crude oil consumption up 4.6% in FY24, output rises marginally at 0.6%, imports steady: PPAC

In terms of value, Russia's share in India's crude oil imports rose sharply from 2% in FY22 ($2.5 billion) to 19.3% in FY23 ($31.3 billion) and 33.3% in the first 11 months of FY24 ($42.3 billion). The share of imports from West Asian countries declined from 35.2% in FY22 ($43.2 billion) to 33.2% in FY23 ($53.8 billion) and 25.5% the first 11 months of FY24 ($32.4 billion).

Exports

Export volumes of petroleum products in India surged 14.8% during the first 11 months of FY24, rebounding from a stagnant performance in FY23. This growth was higher than the levels seen in FY19-21.

The increase in export volumes was seen across regions, and was particularly sharp in Europe. The continent's share of India's petroleum product exports rose to 26.8% in the first 11 months of FY24 from 21.1% in FY23 and 16.8% in FY22.

After a sharp 43.9% expansion in FY23, the value of India's petroleum product exports declined 11.6% year-on-year during the first 11 months of FY24 because of a fall in prices.