Rupee depreciation offsets benefit of easing oil prices

India is not able to get the benefit of drop in global crude oil prices due to depreciating rupee, industry body Assocham has said.

“The benefits of lower international prices were offset by a faster depreciating rupee and thereby resulting in a higher import bill,” Assocham said.

Global oil prices were hovering near $85 per barrel in global markets yesterday against nearly $125 a barrel in recent months. However, the rupee has depreciated to 55 levels against the dollar against the 49 level few months ago.

India imports about 83 per cent of its oil requirement and this has widened the trade deficit to $185 billion in 2011—12, Assocham said.

“Both the international prices and exchange rate are difficult to regulate so therefore, given the runaway import bill the only policy option left is to curb the demand,” it said.

It said reduction in oil consumption “will address a plethora of problems such as rising trade deficit, a bulging fuel subsidy bill and other macro imbalances”.

The chamber said the crude oil imports and its impact on government finances is dependent on the import quantity, the international price of crude oil and the exchange rate.

India’s crude oil import bill in rupee terms shows a whopping 500 per cent increase in the last eight to nine years.

These imports have also been acting as a drag on the foreign exchange reserves, it said, adding in 2002—03, petroleum imports accounted for 23.18 per cent of the country’s foreign exchange reserves.

The proportion has gone up to 34.80 per cent in 2010—11, it said.

“This situation calls for drastic measures and the government has to bite the bullet of either asking states to cut taxes or deregulate the oil sector completely”, Assocham said.

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