Finance oil imports via ECBs, Chidambaram tells Moily PTI

Finance Minister P Chidambaram has dubbed Oil Minister M Veerappa Moily's claim of cutting 3 per cent in oil import bill through fuel conservation as "ambitious" and has suggested that more oil imports need to be financed through overseas borrowings to help cut current account deficit (CAD). Moily is set to launch a six-week mega fuel conservation drive on Tuesday, attempted to taper demand, thereby cutting oil import bill by $2.5 billion. He had outlined the drive as well as other measures in a letter to Prime Minister Manmohan Singh and Chidambaram on August 30 saying his initiatives would help save $20 billion in foreign exchange outgo. Responding to Moily's letter, Chidambaram wrote back last week saying the projected savings of foreign exchange on account of various measures proposed are optimistic, official sources said. "While it is recognised that a conservation campaign might result in some reduction in petro-product consumption, the estimates of savings projected at 3 per cent, over and above the proposed crude imports cut, appear to be ambitious," the finance minister wrote. Stating that only $3.75 billion out of the total crude oil import bill of over $160 billion is proposed to finance through External Commercial Borrowings (ECBs), Chidambaram said the possibility of increasing the ECB mode of financing should be explored. India paid about $144.29 billion last financial year for importing oil and this year the outgo is projected at $160 billion. Besides fuel conservation, Moily wants increase in crude oil imports from Iran, which is paid in rupee and will help curtail foreign exchange outgo. Chidambaram also wanted oil companies to be "encouraged to import crude oil from Iran in greater quantities and their imports from Iran be reviewed regularly". As US and western sanctions have blocked all payment routes, India pays Iran in rupees in a Uco Bank branch in Kolkata. Buying more oil from Iran would mean it pays more rupees than dollars it has to pay to other sellers. Sources close to Moily said the conversation drive - which includes the minister and his officials using public transport at least once a week - is aimed at sending a message for conservation down the line. Also, it is aimed at bringing about change in people's mindset and to act as a catalyst in improving public transport system. The government, meanwhile, is grappling with high CAD, the gap between inflows and outgo of foreign exchange. It has set a target to bring down the CAD, which touched a record high to 4.8 per cent of GDP last financial year, to 3.7 per cent level in the current financial year. Moily's other measures included asking state-owned oil firms to keep crude imports at 2012-13 level of 105.96 million tonnes that will save $1.76 billion in foreign exchange. The mega fuel conservation campaign - to limit its consumption growth to last year's 4.1 per cent level - is projected to help prop up the rupee, which has slid sharply against the US dollar this fiscal.