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India Seeks Billions In Foreign Loans To Offset Rising Costs Of Oil

india flag

India gave the green light to businesses hurt by the rising costs of crude oil to start borrowing up to $10 billion in foreign money that will offset the heavy weight of rising oil prices and the falling rupee, Reuters reported on Wednesday.

India’s current commercial borrowing rules prevent businesses from borrowing more than $750 million in foreign money—the previous limit as outlined in April by the Reserve Bank of India (RBI) as cited by Lexology.

Rising oil prices spurred by increasing fears that Iran’s crude oil exports will take out more oil from the market than previously thought—up to as much as 2 million barrels per day—has weighed heavily in recent months on the country, which is well on its way to overtaking China in terms of oil demand growth—a marker expected to be reached in 2024 according to an August news release from Wood Mackenzie.

But equally as worrisome for the Asian nation is the falling rupee, which today has reached a record low of 73.38, according to Business Today.

Iran has not wavered from its insistence that India will continue to purchase its crude oil, despite sanctions, and despite being unable so far to obtain a waiver from the United States for doing so. Reports, however, show that India has drastically reduced its call for Iranian crude oil, asking for zero Iranian cargoes in November, according to Bloomberg.

Regardless of where India purchases its oil, the crude oil price rise will push up fuel prices for consumers in India, which will chew up cash that consumers would otherwise be spending elsewhere.

Indian refiners have been drawing from inventory to put off crude oil imports, and praised the flexibility of increased foreign funds. “We have a working capital needs on a permanent basis. This is a welcome and a positive move by RBI and will definitely bring down the import cost,” A.K. Sharma, head of finance at Indian Oil Corp, said, as quoted by Reuters.

By Julianne Geiger for Oilprice.com

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  • Yoyo on October 05 2018 said:
    I think they are speculating that the rupee would gain strength in the coming months. So they can get the loan now at 73rs per dollar and then pay back when it goes down to 68 or something.
  • Sheik Jerbouthii on October 04 2018 said:
    "How can borrowing more foreign money to buy oil possibly lower the cost of oil for India? If anything it seems the opposite would be true."

    Of course zipsprite is correct. Financing a consumable is supercharged idiocy. A much better path would be investing in efficiency to reduce oil usage.
  • zipsprite on October 04 2018 said:
    >"This is a welcome and a positive move by RBI and will definitely bring down the import cost,” A.K. Sharma, head of finance at Indian Oil Corp, said, as quoted by Reuters.<"

    This makes no sense to me. How can borrowing more foreign money to buy oil possibly lower the cost of oil for India? If anything it seems the opposite would be true. If India buys more oil than it otherwise would the price of oil goes up. If India is borrowing more money (especially in foreign currency) the rupee will fall farther, making the price they pay even higher. I don't get it.

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