As the global landscape for energy undergoes profound alterations, India’s status quo reveals a concerning trend for the fiscal year 2023-24 (FY24). The subcontinent’s reliance on importing crude oil to satisfy its burgeoning domestic demand has reached an unprecedented apex. An analysis of the latest data emanating from the oil ministry’s Petroleum Planning & Analysis Cell (PPAC) discloses that India’s import dependency on oil has escalated to 87.7 percent in FY24, a slight but notable increase from the previous fiscal’s 87.4 percent.
The Indian economy has been witnessing an inexorable surge in fuel and petroleum product consumption, which has been met primarily by imports due to stagnating domestic oil production. Historically speaking, India’s dependence on foreign oil has been on an upward trajectory. The pandemic year FY21 remains an outlier when demand shrunk temporarily. To put things in perspective, the oil import dependency was 85.5 percent in FY22, then slightly declined during the pandemic influenced FY21 to 84.4 percent, and prior to that, it was 85 percent in FY20 and 83.8 percent in FY19.
This increased dependency on imports bears with it an array of vulnerabilities, including susceptibility to global oil price fluctuations. The prices impact not just the economy but also have a ripple effect on the trade deficit, the reserves of foreign exchange, the exchange rate of the rupee, and the broader subtleties of inflation.
Acknowledging these sensitivities, the Indian government has ardently aspired to decouple India’s deep-seated reliance on imported crude oil. Ambitious targets were set back in 2015 when the government charted a course to cut down oil import reliance to 67 percent by 2022 from a daunting 77 percent in 2013-14. Despite the good intentions, the country has found itself tangled in a narrative of growing import reliance.
The attempts to curtail imported oil expenditure are not only a matter of economic policy but have manifested as a prominent feature in the Bharatiya Janata Party’s manifesto for the upcoming Lok Sabha elections. Moreover, the pursuit of curbing oil imports aligns with the government’s strategic push towards adopting electric mobility, fostering the use of biofuels, and exploring other alternatives for transportation and industry.
Efforts to bolster domestic crude production have been ongoing, with restructured contracts for exploration and production aimed at enticing investment in the sector. The government is actively seeking to open new acreages for the exploration of oil and gas. Although there has been an observable shift toward electric vehicle adoption and biofuels, the overall effect remains insufficient to recalibrate the growing demand for petroleum products.
Calculating India’s import dependency ratio is an exercise that involves assessing the domestic consumption of petroleum products and deliberately avoiding the inclusion of petroleum product exports, which aren’t reflective of India’s demand. As the world’s third-largest consumer and one of the key importers of crude oil, India boasts a refining capacity exceeding 250 million tonnes per annum, earning a reputation for being a net exporter of petroleum products.
Adding another layer to the current economic climate is the data indicating a sharp 4.6 percent year-on-year spike in India’s domestic consumption of petroleum products during FY24, tallying up to a staggering 233.3 million tonnes – clear testimony to the robust demand, especially for transportation fuels such as petrol and diesel. Concurrently, domestic crude oil output experienced a modest increase of 0.7 percent, summing up to 29.4 million tonnes.
Even with the total production of petroleum products from domestic crude amounting to 28.6 million tonnes in FY24, India’s self-sufficiency in crude oil was a mere 12.3 percent – a slight dip from the previous year’s 12.6 percent. When juxtaposed with the total consumption of indigenous petroleum products vis-à-vis the overall domestic consumption of 223 million tonnes, the contrast is stark, highlighting the chasm between local production capability and the nation’s voracious energy appetite.
