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Monday, April 29, 2013

India's oil demand increases

Data source: Mint

 
That oil is one of the largest components of imports for India is not really news. In fact, increasing import of oil is one of the factors behind our fiscal deficit. The deficit for FY13 was burdened even further by higher import of oil. This was to meet the increase in oil demand.

As per a study carried out by Barclays and printed in The Mint, demand for oil increased by 4.7% during FY13. This is one of the highest increases in history. The increase in demand was fuelled by an increase for nearly all of the refined products with the exception of kerosene. The largest surge was in the demand for diesel which increased by 7%. As domestic production did not increase at the same pace, we had to depend on imports to meet the higher demand. As such, net oil imports increased by 8% YoY during the year. In order to curb this, the government needs to focus on boosting domestic oil production. But production has lagged due to lack of investments by domestic companies particularly in terms of technology related investments. Foreign collaborations in the sector have also suffered due to high regulatory risk. These issues need to be sorted at the earliest if India wishes to cut down its reliance on imported oil. Otherwise the burden on our fis cal deficit side from oil will not ease any time soon.

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