India’s dependence on imported crude oil continues to rise due to increasing energy demands and lagging domestic production. This trend is a key concern for the Indian economy.
In the first nine months of the current financial year, India’s oil import dependency reached 88.1 per cent, up from 87.5 per cent in the same period the previous year, and 87.8 per cent for the full financial year 2023-24 (FY24), per latest data from the Petroleum Planning & Analysis Cell of the oil ministry.
India’s energy needs are consistently growing, leading to increased oil imports. This is fuelled by factors like growing energy-intensive industries, increased vehicle sales, a rapidly expanding aviation sector, growing consumption of petrochemicals, and a rising population.
India’s reliance on imported oil has generally increased over the years, with the exception of FY21 when demand was suppressed due to the COVID-19 pandemic. India’s oil import dependency was 87.8 per cent in FY24, 87.4 per cent in FY23, 85.5 per cent in FY22, 84.4 per cent in FY21, 85 per cent in FY20, and 83.8 per cent in FY19.
India’s heavy reliance on imported crude oil makes its economy vulnerable to global oil price fluctuations. This also impacts the country’s trade deficit, foreign exchange reserves, the rupee’s exchange rate, and inflation rate, among others.
Oil import dependency: What data shows
India’s crude oil imports rose to 179.3 million tonnes in April-December, from 173.7 million tonnes in the same period the previous year. Meanwhile, domestic oil production declined slightly to 21.6 million tonnes from 22 million tonnes.
Total domestic consumption of petroleum products in April-December rose 3.4 per cent year-on-year to 178.5 million tonnes, with only 21.2 million tonnes of products coming from domestically produced crude oil, leading to a self-sufficiency level of just 11.9 per cent, per the PPAC data.
The country’s gross oil import bill for the first nine months of FY25 was $102.5 billion, an increase of almost 4 per cent year-on-year. Crude oil imports top the list of India’s merchandise imports.
Future outlook: Demand, imports set to rise
Crude oil consumption and imports are projected to increase further due to increased demand for petroleum fuels and products. Consumption of petroleum products is projected to increase by 4.7 per cent in FY26, reaching 252.93 million tonnes, according to latest estimates by the PPAC. If these projections hold, India’s petroleum fuel and product consumption in FY26 will hit yet another record.
Unlike many countries, India is seen as a major growth centre for oil demand given the future consumption potential and relatively low per-capita energy demand currently. In fact, India is among the few markets where refinery capacity is expected to expand substantially over the coming years. India currently has a refining capacity of nearly 257 million tonnes per annum.
In February 2024, Paris-based International Energy Agency (IEA) had said that India’s oil demand growth was expected to overtake China’s by 2027, making the former the biggest driver of global oil demand growth through the remainder of the decade “underpinned by strong economic and demographic growth”, notwithstanding the growing electric vehicle (EV) penetration, energy efficiency, and rising biofuel consumption.
India’s petroleum consumption has been scaling new heights with each passing year, with the exception of two years when demand was hit because of the pandemic. The revised estimate for the current fiscal—241.68 million tonnes—is slated to be the highest-ever petroleum product consumption level so far, but will likely be topped in the next fiscal. The current record consumption level—234.26 million tonnes—was achieved in FY24.
India’s efforts to cut reliance on oil imports
The Indian government aims to reduce its reliance on imported crude oil but faces challenges due to sluggish domestic oil output amidst rising demand. In 2015, the government aimed to reduce reliance on oil imports to 67 per cent by 2022. However, import dependency has only increased.
The government has implemented several policies to encourage investments in India’s oil and gas exploration and production sector. It is also promoting electric mobility, biofuels, and other alternative fuels to reduce oil imports.
While there has been an increase in electric mobility adoption and the blending of biofuels with conventional fuels, it is not sufficient to offset petroleum demand growth.
