Current account deficit is one of the indicators reflecting the economic status of any country. Brent Crude oil and gold had been the major determinant factors for the bulging Current Account deficit (CAD) of India during 2012-13. As the crude oil consumption could not be reduced, Government took actions on Gold imports. It introduced 10 % levy of import duty and 80:20 rule. It had been the strategic decisions taken by the government to reduce the increasing pressure of CAD. India on an average imports 900 tonnes of Gold per year. This was reduced to 350-400 tonnes in short period after the levy of import duty. India could not tame the effect of crude oil prices, as it is based on International demand and supply conditions. But the situations turned much favourable when prices of brent crude oil started falling in international markets.
US shale gas was the game changer in the global oil industry. Fortunately, it helped to increase the global supply. This has led to the reduction in crude oil prices. The Brent crude oil which was sold at $150 per barrel per day dipped down to $35 per barrel per day. US became Self-reliant due the Shale gas project. They produced resources to satisfy their domestic demand.
This has led to excess supply of oil in international market. Last year experts had an expectation that the prices may fall below $20 bpd.
In spite of fall in prices the OPEC cartels took unique and unanimous decision. They decided not to go for cut in their production. But situation are turning out “ULTA” in recent times. In order to rig the prices, OPEC+ decided to go for cut in the production. It also suggested non OPEC members manufacturing oil to follow the same. But Iran and Russia are not much willing to follow this decision. In Russia, though the government was willing to cut the production, the producers didn’t agree with them. The failure in the cooperation by the OPEC nations in the production cut will benefit India for some more time.
During Fiscal year 2019, the Current account showed a deficit of 2.1 percent which improved to 0.9 percent during the FY 2020. After the 16 years, the CAD turns around to current account surplus which was 1.6 percent of GDP amounting to 10.6 billion US Dollars. This is advanced by dip in imports, due to Covid 19 lockdown as well majorly advantaged by fall in crude prices in international arena.
India is the third largest consumer/ importer of brent crude oil ships 80 percent of its oil needs out of which majorly procured from middle east (65%). During 2019, India imported around 4.5 million barrels per day. Though the fall in crude oil storage is biggest issue, as we don’t have enough storage capacity to stock oil, and make use of the advantage of low price, which is a great miss. China total capacity is 550 million barrels whereas for India it is just 38 million barrels which could satisfy only 9 days requirement, whereas it is 198 days in Japan.
|Cost components of fuel as on 2019 data||Petrol (Rs.)||Diesel (Rs.)|
India is the fourth largest oil refiner in the globe. Its refining capacity is expected to grow to 5.7 million barrels per day to 8 million barrels per day (2025). Global Oil players like Saudi Aramco & Abu Dhabi National Oil Co to own 50 percent stake as well are planning for refinery unit with 1.3 million barrels per day capacity In Western Maharastra. Though this scenario seems much promising the petrol and diesel prices in India is eventually increasing from COVID-19 lockdown period. Moreover, this is expected to increase further due to the additional agriculture infrastructure fund cess levied on petrol and diesel by the centre in the recent 2021 budget to an extent of Rs.2.5 on Petrol and Rs.4 on Diesel. The petrol and diesel prices are almost touching Rs.100 per litre, which was just Rs.60 during 2016 for Petrol. This is becoming a nightmare for the common man as the oil prices are increasing coupled with increase in excise duty. Unlike others good, inflation of fuel boosts inflation of all products. Its high time find alternatives combustion-based engines. At this juncture, welcoming e-vehicles would support common man to overcome price hike of fuel as well safeguards the nature from pollution. To make these benefits reachable the common man, e-vehicles are to be reasonably priced.