By Kaushal Verma
New Delhi [India], August 14 (ANI): A 50 per cent reduction in Russian oil purchases could increase India's annual oil import bill by USD 5-10 billion and push inflation higher, economist Santosh Mehrotra said, amid the US proposal to impose punitive tariffs on countries buying Russian crude.
Mehrotra said India's dependence on Russian oil, which he estimated at around 50 per cent of the country's oil imports, needs to be considered while assessing the economic impact of any reduction in purchases.
"It will depend on how we are able to negotiate with Trump," Mehrotra told ANI, adding that Russia also supplies crude to India at a discounted price compared with international prices.
He said a 50 per cent reduction in purchases would have a significant impact on India's oil import bill.
"If we have to reduce our purchases by 50 per cent... it will have an impact on the oil import bill of 5-10 billion dollars for the whole year," Mehrotra said.
He estimated that such a move could increase inflation by around 0.3 percentage point, while the government could face additional pressure if it decides not to pass higher fuel costs on to consumers.
"If the government doesn't increase the price of petrol and diesel on us, then we will be able to survive. But the government will have to bear the consequences," he said.
Mehrotra also warned that a sharp reduction in Russian oil purchases could widen India's current account deficit (CAD), which he said has remained around 0.6-0.7 per cent of GDP in recent years.
"If our Russian purchases fall by 50 per cent, and because of this, it is obvious that our current account deficit will increase rapidly. So it will also have an impact on our growth rate," he said.
He further flagged the possibility of higher global crude prices if Russian oil supplies to major buyers such as India and China are reduced significantly.
"Russia is a major producer and seller of oil. If Russia's oil does not enter the international market, then the international price of oil will increase," Mehrotra said.
He said higher global oil prices would create additional pressure on economies, including India, and should therefore be factored into the government's response to the US tariff proposal.
Ajay Srivastava, Founder of Global Trade Research Initiative (GTRI), said India should not rush to reduce Russian oil purchases merely to appease the US, particularly as Washington has several other trade-related concerns with New Delhi.
"India should go for more markets as we have plenty of FTAs in our way. Instead of depending on the US for our trade heavily, we should diversify our market. That should be the new strategy," Srivastava told ANI.
He said India's dependence on Russian crude has increased from around 15 per cent in 2022 to nearly 30 per cent last fiscal and over 50 per cent in July, amid disruptions in supplies from traditional Gulf sources.
"India should count Russia as the most trusted supplier. It should have a long-term strategy, then it will get better discounts," Srivastava said, advocating long-term crude supply arrangements.
He also cautioned that reducing Russian oil purchases may not resolve broader trade tensions with Washington.
"Suppose we stop buying oil from Russia... will that buy peace from the US? No. They have 10 more instruments to punish us," he said.
Vandana Bharati, AVP, Commodity Research at SMC Global Securities Ltd, said India should adopt a "wait and watch" approach as US statements on the issue continue to change.
"Energy and food security remain top priorities, making continued Russian oil imports important for India amid prolonged geopolitical tensions," Bharati said.
She said India's crude imports from Russia could see a short-term dip but are likely to remain significant over the longer term.
Bharati also said India has alternative trade options, including deals with the European Union, the Middle East and other countries, to counter US trade pressures.
The experts said India needs to balance the tariff risks with energy security while preparing for possible pressure on its oil import bill, inflation, current account deficit and economic growth. (ANI)
50% cut in Russian oil purchases could raise India's oil bill by USD 5-10 bn, push inflation: Economist
