India’s Oil Predicament

India is the third largest consumer of crude oil in the world and its demand for oil is growing fast at a time when demand growth is slowing down in older industrialised economies. The global oil industry sees India as the most important export destination for the next two decades. India already imports over 80% of its crude oil requirement. With domestic production declining, it could become even more vulnerable to the vagaries of international crude oil markets in the future. Although the last three years since mid-2014 have been favourable for India by way of lower import prices, this is beginning to change for the worse.

When the global crude oil prices fell from $105 per barrel in 2013–14 to $46 per barrel in 2015–16, the Narendra Modi government, which had assumed office a few months before the fall in international prices, took advantage of the lower prices and raised duties to earn higher revenues instead of passing on the benefits to consumers. This meant that retail consumers paid as much for petrol and diesel as they did when the import prices were over $100 per barrel. More recently, however, the price of the mix of crude oil that India imports or the “Indian Basket” was $59 per barrel on 31 October, up from $51.2 per barrel on 31 July this year. The nearly daily upward revisions in retail price during this period forced the government to cut duties in the face of opposition party protests.