Falling rupee to add $26 billion to India's oil import bill
17 Aug 2018
The falling rupee and rising oil prices will combine to push up India's annual crude oil import bill by about $26 billion in 2018-19, as the dollar denominated crude oil becomes costlier.
Oil ministry officials said with the rupee hitting a record low of 70.32 to a dollar there will also be a hike in the retail selling price of petrol, diesel and cooking gas (LPG).
India, which imports over 80 per cent of its oil needs, spent $87.7 billion (Rs5,65,000 crore) on importing 220.43 million tonnes of crude oil in 2017-18. For 2018-19, the imports are pegged at almost 227 million tonnes.
"We at the beginning of the financial year estimated that crude oil import bill will be around $108 billion (Rs7,02,000 crore) at an average crude oil price of $65 per barrel and exchange rate of Rs65 per dollar," an official said.
But the exchange rate has been at an average of Rs67.6 till 14 August. If the rupee is to stay around 70 per dollar for the rest of the fiscal, the oil import bill will be $114 billion, he said.
The rupee has been among the worst performing currencies in Asia, witnessing 8.6 percent slump this year.
India’s trade deficit, or the gap between exports and imports, in July widened to $18 billion, the most in more than five years, on the back of rising oil import bill.
Trade deficit puts pressure on the country’s current account deficit (CAD), a key vulnerability for the economy.
Rupee depreciation will result in higher earnings for exporters as well as domestic oil producers like Oil and Natural Gas Corp (ONGC) that charges oil refiners in US dollar terms.
The full impact of rising crude prices will be visible later this month.
"Though oil firms fix retail selling price of petrol and diesel on a daily basis, the inputs for that fixation are an average of previous fortnight. So on Thursday's rate is based on average benchmark of international oil prices and the exchange rate of August 1-15.
"And since the rupee in the beginning of the month was at 68.3 to 68.6 a dollar, the exact impact of on Thursday's depreciation is not visible," he said.
State-run oil marketing companies on Thursday hiked the prices of petrol and diesel by 6 paise a litre each to Rs77.20 and Rs 68.78, respectively in Delhi.
These rates, however, are the lowest for metros and most state capitals due to lower sales tax or VAT. If oil prices continue at these levels and rupee at 70 a dollar, retail rates should go up by 50-60 paisa a litre.
Petrol price had touched an all-time high of Rs 78.43 a litre on May 29 and had since receded. On that day, the diesel price had touched an all-time high of Rs 69.30.