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With rupee getting increasingly weaker by the day, crude oil, edible oils, iron ore, coal will all become costlier as all of these are being imported by India in substantial quantities. Though not all of these are daily consumption items, variations in their prices will certainly have an indirect effect on household finances. And thanks to this heavy dependence on imports of crude, coal and edible oil, rupee fall will also have a huge impact on the trade deficit. According to the government statistics, India is expected to import 186 million tonne (MT) of crude oil during the current financial year. India, one of the world's biggest refiners of crude oil, depends heavily on imports as its local production is as low as 39 MT (estimated for 2013-14). Indian Rupee has showed its new all time low against US dollar and all other major currencies. Indian Rupee has weakened more than 13 per cent in 3 weeks and is expected to weaken further.

And according to analysts what can worsen things further is the growing demand for crude oil in India.  The crude oil demand is expected to outpace the supply by 0.37bbpd in coming days, said Kunal Soni, research analyst with Emkay Commotrade Ltd.

Union petroleum minister M Veerappa Moily told the parliament on Tuesday that the estimated demand for 2013-14 of petrol, diesel and LPG is 16,335 MT, 73,500 MT and 16,712 MT, respectively and said that as high as 78.75 per cent of crude oil required in India for petroleum products would have to be imported. India had imported $156.97 billion worth crude oil and products in 2012-13 but ended up with a net import bill of $98.14 billion, thanks to product exports of $58.84 billion.

However, when it comes to edible oil, the falling prices of edible oil in the global markets is likely to soften impact of depreciating rupee on edible oil prices in the country, feel analysts.

“A depreciating local currency would hurt the importers as they will be required to pay more for importing same quantity of product. In case of edible oils, however, the importers have been saved to a certain extent as prices of these oils have fallen in the international markets. Since March 2013, prices of imported oils have declined by 8-14 per cent, except in case of crude palm oil which has seen fall of 4 per cent. If international prices of edible oils fall further, India may continue to import large quantities of edible oils. Overall, the depreciating rupee has led to decline in total share of palm oil imports to 66 per cent in July against average of 81 per cent during Nov’12 – July’13,” said Raju Choksi, Vice President (agro-commodities), Anil Nutrients Ltd.

Besides, India’s import list also includes an increasing amount of thermal coal used for generation of electricity. A falling rupee will therefore increase costs for power generating units, who in turn are expected to pass these on to distribution utilities, finally leading to higher electricity bills for consumer at large.

India’s coal imports jumped 32 per cent during April-July, first four months of the current financial year. India imported 58.3 MT coal between April and July as compared to 44.2 MT in the same period last year.

Although the rupee has witnessed a bit of appreciation since its record fall, it is not much of a relief for the import bill of the country. While the country aims to cut down on its import bill, Coal India Limited plans to import coal. In a situation like this, would renewable energy resources have a bigger role to play in the Indian energy sector?

 

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