Sunday, 19 May, 2024
Economy 01-May, 2024

Is India's Aatmanirbharta Vision Fading as Oil Imports Soar?

By: Rishav Khetan

Is India's Aatmanirbharta Vision Fading as Oil Imports Soar?

Source: Wikimedia Commons

India's dependence on imported oil has soared to unprecedented levels, reaching 87.7% and the nation's fuel consumption has also soared to an unprecedented 233.3 million tonnes in the fiscal year 2023-24. An escalating consumption coupled with inadequate domestic crude oil production has impacted India's self-sufficiency in crude oil.

India's reliance on imported crude oil has soared, highlighting the nation's struggle to meet its escalating energy demands amidst dwindling domestic production. Despite being the world's third-largest consumer of oil, India ranks only 26th in terms of domestic oil production, exacerbating its vulnerability to global oil price fluctuations and impacting macroeconomic stability and growth. Despite government initiatives aimed at ensuring energy security, the country's efforts have fallen short, failing to achieve self-sufficiency or offer viable alternative energy solutions. With India categorized as a lower-middle-income country by the International Monetary Fund (IMF), the ripple effects of oil price inflation could spell trouble for a significant portion of the population.

In the fiscal year 2024, India's dependence on imported oil has soared to unprecedented levels, reaching 87.7%, according to the latest figures released by the Ministry of Petroleum and Natural Gas' Petroleum Planning & Analysis Cell (PPAC). This increase can be attributed to the country's growing energy demands, coupled with limited domestic oil production. Despite efforts to diversify energy sources, India's dependence on imported petroleum products remains pronounced. Russia continues to be the primary supplier, accounting for nearly one-third of the crude imported into the country. India imported 232.5 million tonnes of crude oil in the FY 2023-24, a figure almost identical to the previous financial year. Petroleum exports as a percentage of the country's gross exports stood at 12 per cent in 2023-24, a slight decrease from 14 per cent in the previous year.

The nation's fuel consumption has also soared to an unprecedented 233.3 million tonnes in the fiscal year 2023-24, marking a 4.6% surge from the previous year's consumption of 223 million tonnes in 2022-23 and 201.7 million tonnes in 2021-22. The consumption of petroleum products derived from domestically produced crude oil stood at 28.2 million tonnes, a little over a tenth of the total domestic consumption. This escalating consumption, coupled with inadequate domestic crude oil production, has led to a decline in India's self-sufficiency in crude oil, dropping from 12.6% in the preceding fiscal year to 12.3% in FY 2024. 

Interestingly, data from PPAC shows that India possesses a surplus refining capacity for petroleum product production at 276.1 million tonnes, less than the consumption demand of 233.3 million tonnes. Owing to high dependence on oil imports, any rise in global oil prices negatively impacts the Indian economy. The Reserve Bank of India (RBI) estimates that a 10% increase in crude oil prices raises domestic inflation by 30 basis points (bps). Notably, although the import of crude oil increased in FY 2023-24, the oil import bill decreased to 11.03 lakh crore (USD 132.4 billion) from 13.13 lakh crore (USD 157.5 billion) in 2022-23, owing to discounts from Russia and a drop in international crude oil prices.

Need to Reduce Import Dependency

To mitigate high dependency on oil imports and address associated risks, there is a need to reduce reliance on fossil fuels by promoting alternative energy sources. In this case, government initiatives on incentivizing electric mobility, biofuels, and alternative fuels, alongside efforts to boost domestic oil output through exploration and production activities need to be enhanced. 

Over the past few years, the government has also intensified efforts to raise domestic crude oil output by pushing for the exploration and production of oil and gas. The Government of India actively advocates for the Ethanol Blending Programme (EBP), a scheme that blends ethanol with petrol to reduce the consumption of fossil fuels, as part of its efforts to reduce the nation's reliance on crude oil imports. Additionally, NITI Aayog's 'Methanol Economy' initiative targets the reduction of India's oil import expenditure by promoting the use of methanol as an alternative fuel. 

These initiatives, while promising, also face challenges such as infrastructure development and public acceptance. Various schemes and policies such as the Pradhan Mantri Suryodaya Yojana, Production Sharing Contract (PSC) Regime, Ethanol Blending Programme (EBP), Hydrocarbon Exploration and Licensing Policy (HELP), and New Exploration Licensing Policy (NELP) aim to enhance energy security and reduce oil imports. 

India's escalating reliance on imported petroleum products underscores the need for comprehensive energy security measures. By diversifying energy sources, improving energy efficiency, investing in clean energy technologies, and implementing balanced policy measures, India cannot only strengthen its energy security but also significantly reduce its carbon footprint. This transition to alternative energy sources not only reduces India's vulnerability to global oil price fluctuations but also has the potential to mitigate climate change, improve air quality, and protect the environment for future generations. Given the long term benefits, it is crucial for India to accelerate efforts in this direction.