India is heavily dependent on imported oil, accounting for almost 86 percent of its requirement. Retail oil price has a big impact on the country’s overall inflation rate and economic growth. Interestingly, the country’s GDP growth forecasts for 2023 vary from as low as 4.8 percent to 6.5 percent compared to the official estimate of 7.2 percent in the last fiscal. The cumulative average real GDP growth rate over the period 2019-20 to 2022-23 was only 3.2 percent.

During the first two months of the current fiscal, India’s foreign trade showed a significant contraction. The country’s overall exports of merchandise and services in April-May, this year, is estimated to exhibit a negative growth of (-) 5.48 percent over April-May 2022. Overall imports in April-May 2023 is also estimated to show a negative growth of (-) 9.63 percent over the corresponding period, last year. High transportation costs are leading to inflationary pressures.

Further, the delayed monsoon is bound to impact the output and prices of farm products adversely. The economy is reeling under inflation caused by high transportation costs. And, importing cheaper oil from Russia may be benefiting the government but not the common man. Interestingly, RBI’s latest ‘state of the economy’ report said personal consumption is slowing down because of inflation and businesses are not making significant investments despite higher capacity utilisation. “Bringing down inflation and stabilising inflation expectation will revive consumer spending and boost corporate spending and profitability, which is the best incentive for private capex,” the report said.

Few will disagree that the easiest way to address the concerns for inflation and consumer spending is to bring down the retail prices of oil, the prime mover of consumption. Cheaper Russian oil imports provide the opportunity. China is passing on the benefits of cheaper Russian oil imports to consumers to boost demand and economy. Why is India fighting shy? The Paris-based International Energy Agency (IEA), which works with countries around the world to shape energy policies for a secure and sustainable future, has projected that India’s GDP would grow by 4.8 percent in 2023, rising to 6.3 percent in 2024 before recovering to a stronger seven percent in the period of 2025-28.

"Growth will be buttressed by favourable demographics and an expanding middle class," it said. "India is set to overtake China in terms of global year-on-year oil demand growth in 2027.” IEA’s GDP forecast growth for India during this calendar year would appear to be more reliable than the country’s GDP forecast for the current financial year by the government and the central bank. Recently, Chief Economic Adviser Venkatramanan Anantha Nageswaran said at a meeting of Bharat Chamber of Commerce in Kolkata that "both the ministry of finance and the RBI are on the same page with the growth forecast for the current fiscal which is 6.5 per cent with risks evenly balanced. The domestic economic growth momentum is strong enough to overcome external risk factors”.

IEA’s report focused on India’s growing import of discounted oil from Russia. Interestingly, China, the other major importer of cheap Russian oil, had recently slashed the gasoline benchmark retail price by 420 yuan a tonne and diesel by 400 yuan per tonne. Gasoline and diesel prices have been cut in China amid growing government efforts to reverse a sharp slowdown in the economy. Gasoline Prices in China decreased to 0.92 USD/Litre in May from 0.95 USD/Litre in April, 2023. India, the second largest importer of Russian oil, is not showing any sign to cut down retail prices of gasoline to help faster growth of its economy. India and China, the world's top oil users, are heavily lapping up discounted Russian crude oil, buying together as much as 80 percent of the oil that Moscow exported in May, IEA said in its report.

"Heavily discounted Russian crude oil has found new buyers primarily in Asia. India has increased purchases from almost nothing to close to two million barrels per day, while China has raised liftings by 500,000 barrels per day to 2.2 million barrels per day," the international energy agency said in its latest ‘Oil Market Report.’ Russia-origin seaborne crude exports averaged 3.87 million barrels per day in May, the highest since Russia invaded Ukraine in February 2022. In May, 2023, Russia made up 45 percent and 20 percent of crude imports in India and China, respectively. The incentive to purchase cheap Russian crude remains underpinned by deep discounts. Russia's main crude export grade Urals discount to Dated Brent averaged US$ 26 per barrel in the first three weeks of May. This compared with US$ 3.70 a barrel in January 2022.

Paradoxically, retail petrol prices are continuing to remain high across India with the price being close to Rs.97 per litre in New Delhi, the nation’s capital, and roughly Rs.103 in Chennai, Rs.106 in Kolkata and Rs.111 in Mumbai. On the other hand, per litre diesel prices in the four metro cities are: Rs.90 in Delhi, Rs.93 in Kolkata, Rs.94 in Mumbai and Rs.94 in Chennai. From March 1, the price of cooking gas in Delhi was raised by Rs 50 per cylinder. A 14.2 kg domestic gas cylinder in Delhi now costs Rs 1,103, against Rs 1,053 earlier. The domestic gas cylinder cost in Kolkata is Rs.1,129.

The oil ministry attributes the increase over the years to India’s dependence on imports for LPG and the average Saudi contract prices. Why isn’t the government following the same rule for petrol and diesel prices following large crude oil imports from Russia at discounted prices? The high gasoline prices have made the citizens’ life miserable as they find it difficult to afford essential commodities and transportation in their day to day lives. The gasoline prices remain high and keep rising despite the country boasting cheaper oil imports from Russia. (IPA Service)