At least in the oil sector, the global health emergency posed by the spread of the novel Coronavirus and Saudi Arabia declaring a price war, is coming to India's advantage.
India's oil import bill is expected to fall by a sharper 10% in FY20 as the increasing spread of Coronavirus and now the fallout of talks between OPEC and Russia has depressed the crude oil prices to about $30 a barrel now against a high of over $70 a barrel in September, 2019 and again in January this year.
For FY21, the import bill could slip to half of current levels at $64 billion witnessed in FY16 when crude had fallen to $26 a barrel for some time.
According to oil ministry's Petroleum Planning and Analysis Cell (PPAC), country's oil imports is projected to fall to 225 million tonnes (mt) in FY20 against 227 mt in FY19 while the import bill would reduce 6 per cent to $105 billion from $112 billion worth of imports in previous fiscal.
However, this calculation is based on average crude price of $64 a barrel for April-December of current fiscal while the January-March import has been worked on the basis of crude price of $66 a barrel. It is worth noting that crude oil prices slipped to below $60 and now around $30 a barrel from highs witnessed in first week of January. Analysts say that this would bring big savings on oil imports that generally surge in the later part of the financial year.
If the price remains around $30 for most parts of 2020, import bill could reach its all time low in many many years. The potential is it could fall to $64 billion in FY 21, the same as FY16 when crude prices slipped below $26 a barrel.
A one dollar fall in crude oil price results in reducing country's import bill by almost Rs 2,900 crore while a rupee fall in value of currency against dollar results in increased spending by upto rs 2,700 crore.
"The oil imports bill may well fall below $100 billion this year as Coronavirus and now the Saudi price cuts may have further dented the oil market. This could bring down country's oil purchase bill sharply," said an oil sector expert asking not to be named.
On a monthly purchase of oil worth $10 billion monthly, the additional savings for the months of January-March 2020 itself works out to about $10-15 billion. This would easily bring down the import bill to below $100 billion mark after a gap of almost one year.
While India imported crude oil worth $112 billion in FY19, its import bill has transited substantially lower in the previous three financial years with oil import bill standing at mere $64 billion in FY16 when oil prices slipped on over supplies, especially with the entry of US shale oil.
Lower volume of crude processing by fuel refiners is also expected to have an impact on import bill.
For India, lower oil prices act as big incentive as the country depends on imports to meet 86 per cent of its oil requirements. Lower import bill would also have positive impact on country's fiscal deficit that had already slipped from earlier targets in the wake of higher government expenditure this year to curb falling GDP growth.
The dependency of imported crude (on consumption basis), on the other hand, has increased from 82.9 per cent in FY18 to 83.7 per cent in FY19, meaning we are producing less oil and depending more on imports to meet domestic requirements. This dependency has consistently increased in all five years of the Modi government.
Crude production in India has stagnated around 35 mt for past decade. In FY19, domestic crude production has dropped to 34.2 mt from 35.7 mt in the previous year.
Despite best efforts of the government, domestic oil production has not increased. Government has now pinned hope on its new Hydrocarbon Exploration Licensing Policy (HELP) that institutes an open acreage policy to see more investment in country's exploration and thereby increased production in coming years.