It really is a no-brainer. India is grappling with a current account deficit (CAD) of $80 billion that is exerting tremendous pressure on the rupee. Controlling imports and reducing the trade balance are obviously one of the key strategies for reining in the CAD. Crude oil is the largest component of India’s import bill, accounting for a third of the total. Any attempt to control the CAD should obviously start with reducing the crude oil import bill. Iran, which is stifled by U.S. financial sanctions, is willing to sell oil to India in exchange for payment in rupees. What should the government do? Grab the offer, obviously. Yet, buckling to unfair pressure from the U.S., the government has been cutting down on imports from Iran over the past three years. As India fell in line with U.S. sanctions, it reduced its oil imports from Iran from 21.2 million tonnes in 2009-10 to 13.2 million tonnes in 2012-13. In the first five months of this fiscal, the country imported just two million tonnes of crude oil from Iran. However, the time has now come for India to unhitch itself from the American bandwagon and step up crude imports from Iran in its own interests.
According to a proposal the Petroleum Ministry has sent to the Prime Minister, the country’s dollar payments for its oil imports can be brought down by $8.5 billion (almost 10 per cent of the CAD) if it imports as much oil from Iran as it did in 2012-13, which is another 11 million tonnes. This newspaper argued even at the time of imposition of sanctions on Iran that succumbing to U.S. pressure would not be in India’s interests. With Iran offering the comfort of rupee payments through a bank account with an Indian bank in Kolkata, India should now push the advantage and maximise its oil purchases from that country. Such a move will ease the pressure not just on the current account but also in the forex market as the oil companies will be buying that many dollars less. Oil companies are big buyers of dollars and have the potential to influence the forex market. Meanwhile, the government’s announcement that fuel conservation measures will be announced soon has raised expectations and anxieties equally. Ideas such as the one to close petrol bunks at night are not just bad but foolish, and Petroleum Minister Veerappa Moily’s suggestion to that effect caused considerable confusion before he clarified the position on Monday. The best way to conserve fuel is to raise prices to market levels, which will hopefully push users to economise on consumption. The downside though is that it will have an adverse impact on inflation. Clearly, the choices are not easy but the government should keep in mind the interests of the common man while framing its strategy for fuel conservation.