In an unexpected turn of events, Russia emerged as India’s top oil supplier for the second consecutive month in November 2022, exceeding traditional suppliers Iraq and Saudi Arabia. As a consequence of the European Union’s ban on Russian seaborne oil imports initiated in December, Russia has sought alternative markets, particularly in Asia, triggering a shift in supply dynamics. Russia now constitutes approximately 22% of India’s total crude imports, outpacing Iraq’s 20.5% and Saudi Arabia’s 16%.
An Overview of India’s Oil Import and Consumption
India, being the world’s third-largest oil consumer, uses approximately 5 million barrels of oil daily, placing it behind only the United States and China. The rapidly expanding Indian economy drives oil demand, which is increasing annually by 3-4%. This trend suggests that within a decade, India could be consuming around 7 million barrels each day. Government data from the Petroleum Planning and Analysis Cell (PPAC) reveals that India imported 212.2 million tonnes of crude oil in 2021-22, an increase from 196.5 million tonnes the previous year. Further, India’s oil import dependency rose marginally to 86.4% in April 2022-23, up from 85.9% in the prior year.
Effects of Higher Crude Oil Imports on Macroeconomic Parameters
The rising demand and consumption of oil have somewhat undermined efforts to increase output, escalating the country’s oil import bill. This financial burden threatens to strain macroeconomic parameters, prompting a variety of mitigating initiatives.
Efforts to Reduce Crude Oil Imports
India launched various measures to wean off foreign oil dependence. In March 2015, the Prime Minister spearheaded ‘Urja Sangam 2015’, the most significant global hydrocarbon meet in India’s history. The meet aimed to reduce import dependence from 77% to 67% by 2022 and further to 50% by 2030. Additionally, several policies were introduced to amplify domestic oil and natural gas production. The schemes include Production Sharing Contract (PSC) Regime, Discovered Small Field Policy, Hydrocarbon Exploration and Licensing Policy (HELP), and New Exploration Licensing Policy (NELP). However, long gestation periods, fluctuating pricing and tax policies, and considerable capital requirements make domestic oil production a challenging venture.
Expanding towards Ethanol: A Step towards Reducing Oil Dependence
The Ethanol Blending Programme (EBP) is another key initiative of the Government of India aimed at diminishing the nation’s reliance on crude oil imports, reducing carbon emissions and bolstering farmers’ incomes. The government advanced its initial goal for achieving 20% ethanol blending in petrol to 2025 from 2030, demonstrating a commitment to sustainable energy alternatives.
Strategies to Diminish India’s Oil Import Dependence
Addressing India’s oil import dependency necessitates two key strategies: enhancing domestic production and developing alternative green energy sources. Proponents suggest that India, much like China, should grow its overseas exploration and production assets. The state-owned oil giant Oil and Natural Gas Corporation (ONGC) has taken strides in this direction by revitalising existing mature fields and developing new or marginal fields.
Renewable Energy: The Future of Power
Parallelly, India should diversify its energy basket and focus more on renewable resources. With increasing power demand due to economic growth and CoP26 commitments, Renewable Energy demand is at an all-time high. The wind sector garnered substantial investments due to private interests and government initiatives, but favorable policies and the global supply of solar cells and modules propelled solar power to outstrip wind power in competitiveness.