India runs on coal and travels on oil. Oil and coal and their products make up four of top five imports for India

India runs on coal and travels on oil. Oil and coal and their products make up four of top five imports for India. The only exception is centuries-long longing for gold among Indians. In value terms, crude oil is the single largest import contributor and has consistently accounted for more than 20 per cent of India’s imports basket.

India imports about 85 per cent of its fuel oil needs. It is the third largest consumer and importer of the crude oil in the world. Any fluctuation in the crude oil prices is bound to impact Indian economy. Inflation, current account deficit (CAD), fiscal deficit and overall GDP (Gross Domestic Product) growth rate gets favourably or adversely impacted.

The RBI estimates that a crude price shock will be followed by high CAD to GDP ratio if price increase is passed on directly to the final consumers, this January 2020 RBI paper says.

There have been suggestions that India should stockpile oil when the prices are favourable in the international markets. The current prices of crude oil present one such situation for India. The crude oil fell below $30 per barrel on Monday. On Wednesday, the prices fell below $26 per barrel. The last time crude oil prices had fallen to $26 per barrel level in 2016 after which it started increasing. In January, the crude oil was selling at $70 per barrel.

Indian government has decided to increase its strategic petroleum reserve (SPR) by buying oil from Saudi Arabia and UAE, the principal players responsible for sharp cut in crude oil prices due to rivalry between the factions of oil exporting countries. Saudi Arabia increased its oil output from less than 10 million barrels a day to 13 million barrels per day.