08 September 2013, News Wires – India’s oil minister is resorting to desperate measures to cut the country’s oil costs by almost $20 million after the rupee’s slide to record lows has left India facing an oil bill potentially 50% higher than at the start of May.
Oil Minister Veerappa Moily has suggested a street theatre campaign encouraging lower fuel use, shutting fuel stations and even increasing imports from Iran to puncture the ballooning oil bill.
According to Reuters, India’s crude import bill was $144 billion last fiscal year – the largest part of its overall import costs. As Asia’s third-largest economy, India imports about 80% of its oil, which accounts for about 30% of its energy needs.
India’s rupee has fallen 20% to record lows near 70 to the dollar as the economy struggles with decade-low growth, a record current account deficit and a steep fiscal shortfall.
Meanwhile, international oil prices have gained about 15% over the same period. In rupee terms, the Brent oil benchmark has gained nearly 50% since 1 May, when faith in emerging market growth began to falter just as the US Federal Reserve began signaling it might wind down its monetary stimulus.
India’s fuel subsidies have been highlighted as an area where it could save money, but raising retail oil prices is a political problem when few of the nation’s consumers pay market rates for the fuels they use. In addition, elections are approaching by May 2014.
“Subsidies are something they can do something about and that is clearly something that they should address … but you get into this whole issue about elections and public anger,” Reuters quoted Praveen Kumar, who leads the South Asia oil and gas research team at FGE, as saying in Singapore.
“People are angry with all that’s happening with the economy and the rupee crashing. I don’t see this situation can continue for too long,” he said.
According to Reuters calculations, one step that could potentially save $4.3 billion in oil costs would be a hike of around 5 rupees per litre (about 10%) in diesel prices. An oil ministry source suggested such an increase might come after 6 September, when the current parliament session ends.
“The rupee depreciation has left us with no alternative but to pass on costs to customers,” Reuters quoted an Indian oil company official, who also noted that demand had edged lower with the higher oil prices and slower economic growth.
State-owned retailers sell diesel at subsidised prices that are currently about 10 rupees per litre below estimated true market levels.
However, total subsidies for LPG, kerosene and diesel amount to about $25 billion a year, according to FGE’s Kumar, and “there’s no way they can dismantle that over night.”
India consumed about 1.4 million barrels per day of diesel in 2012-2013, making up over 40% of the country’s total fuel demand.