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ICRA report: India’s FY25 oil import bill may reach $101-104 billion

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In Short:

India’s oil import bill could rise to $101-104 billion in FY25 due to low discounts on Russian crude, increasing expenditure on oil imports. This could widen the current account deficit, leading to higher inflation and fiscal deficits. However, savings from discounted Russian crude have been significant. Changes in crude oil prices could impact inflation rates differently. India’s overall oil import volumes increased by 1.5% in FY24.

India’s Oil Import Bill Could Touch $101-104 Billion in FY25: ICRA Report

Hey there! So, ICRA recently came out with a report on India’s oil imports and it looks like the country’s net oil import bill might reach $101-104 billion in FY25. That’s a jump from $96.1 billion in FY24. This increase is due to the current low discounts on purchases of Russian crude, assuming an average crude oil price of $85 a barrel. Yep, that’s what the report said.

Potential Impact on Economy

Now, what’s interesting is that this uptick could have some implications on the economy. It might broaden the current account deficit (CAD), could potentially lead to higher inflation, and might even affect the fiscal deficits if not managed effectively. ICRA is predicting that the CAD could widen to $44-46 billion in FY25 (-1.2% of GDP) from $29-30 billion in FY24 (-0.8% of GDP). That’s quite a gap, right?

If there’s a $10 increase in the average crude oil price for the fiscal year, it could push up net oil imports by $12-13 billion, enlarging the CAD by 0.3% of GDP. That’s a pretty significant impact, according to the report.

Savings from Russian Oil

But wait, here’s a positive twist! The ICRA report also mentioned that the increase in discounts on purchases of Russian crude oil has brought in some great savings for India’s oil import bill. These savings shot up to $7.9 billion in the first 11 months of FY24, which is a huge leap from $5.1 billion in FY23. Now, that’s some good news amidst all the numbers and forecasts.

Geopolitical Tensions and Oil Prices

Speaking of oil prices, any escalation in geopolitical tensions that leads to a surge in crude oil prices might create more challenges for India’s economy. Higher crude oil prices tend to put pressure on the fiscal deficit by increasing the government’s subsidy burden, especially for items like kerosene and LPG. This, in turn, could also impact the retail prices of petrol, diesel, and aviation turbine fuel (ATF), influencing GDP growth.

Impacts on Inflation and Exports

Changes in crude oil prices are expected to reflect quicker in the wholesale price index (WPI) than in the consumer price index (CPI). For every 10% hike in crude oil prices, WPI inflation could rise by 80-100 basis points, while CPI inflation might increase by 20-30 basis points. That’s an interesting insight from the ICRA report.

Also, on the brighter side, India saw a surge in export volumes of petroleum products in the first 11 months of FY24, which bounced back from a stagnant performance in FY23. The growth was quite robust, especially in Europe, which shows some positive movement in terms of exports.

So, there you have it, a mix of challenges and opportunities brewing in India’s oil import scenario. Let’s keep an eye on how things unfold in the coming fiscal year!

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