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 CAD.
Moily is to launch on Tuesday a 6-week mega fuel conservation drive to taper demand thereby cutting oil import bill by USD 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 USD 20 billion in foreign exchange outgo.
Responding to Moily's letter, Chidambaram wrote back last week saying that 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," Chidambaram wrote.
India paid about USD 144.29 billion last fiscal for importing oil and this year the outgo is projected at USD 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.
Sources close to Moily said the 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.
Stating that only USD 3.75 billion out of the total crude oil import bill of over USD 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.
The government, meanwhile, is grappling with high Current Account Deficit, 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 fiscal, to 3.7 per cent level in the current financial year.
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.
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 USD 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 save another USD 2.5 billion and prop up the rupee, which has slid sharply against the US dollar this fiscal.