Import of Crude Oil - A big reason for fall of the rupee

Rising prices of crude oil all over the world is hindering the growth of many nations in the world and India is no exception. India is capable of producing only 30% of the nations requirement, and 70% has to be imported.

Since 1990, there has been no increase in India's production of crude oil. However, the requirement of petrol, diesel, lpg, cng has been on the rise.

Rise of Crude Oil Consumption of India leading to imports

Though India has many coal reserves which meet 53% of the power requirement, oil accounts for 31% of energy consumption. Natural gas provides provides 8% and hydro electric energy gives 6%. Nuclear and other renewable forms of energy account for only 2% of the total energy consumption. This makes crude oil a major player in determining the economy of the nation since most of it is imported.

In 2011, the country was consuming around 3,426,000 barrels per day. The current price of crude oil is around 105 dollars per barrel. This means in 2011 India could have spent around 3426000 x 105 x 365 = 131,301,450,000 dollars. Most of this money goes to Saudi Arabia and Iran from where the crude oil is imported.

The crude oil is purchased in dollars, so India has to purchase USD with INR. This creates a demand for dollars and an excess of rupee causing the evaluation of dollar and devaluation of rupee.

The current situation is hard to control because India has become very much dependent on oil imports. In order to stop further devaluation of rupee against the dollar india needs to move towards energy independence. The falling currency can be stabilized by increasing exports which is possible by industrialization and agriculture. It should also be noted that India has a vast population which needs to feed so agriculture alone cannot be the answer. India desperately need industries which can sell finished products globally, just like China, which makes almost all electronics in the world. India celebrates diwali by lighting their homes with chinese lights, used phones, computers, tablets which are manufactured in china. India should also focus on such industrial growth and also venture in those areas yet to be exploited in global business that could strengthen our economy. Until that time, we cannot expect the rupee to revive.