The government would have to do a delicate balancing act as it seeks to thrash out a politically acceptable and economically prudent solution to dangerously high global crude oil prices.
In the immediate future though, the government is unlikely to increase the prices of motor fuels. With the ruling alliance suffering reverses in state elections, the petroleum ministry has decided to evolve a consensus among the allies before considering a marginal increase in the prices of petrol and diesel and a reduction in excise duty.
Analysts, however, are asking the all-important question: how long can India avoid a pass-through of global crude prices into the domestic market?
A targeted GDP growth rate of over 9 per cent implies a four-fold increase in India’s energy requirement over the next 25 years, which is a significant challenge for the country, consulting firm KPMG said in a report on India’s energy outlook recently.
Analysts believe that the coming year could see more Indian public sector oil behemoths acquiring overseas assets as the government grapples to augment supply.
Signs of these can already be seen with Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC) planning major forays in Africa. The government has been seen as making efforts to broaden the supply base both internally and externally. It is intended to diversify the fuel basket by increasing shares of natural gas, hydro and even nuclear energy, an analyst with KPMG said.
Within the government, a view is emerging about linking movements in global prices to those of domestic retail prices.
Planning Commission Deputy Chairperson Montek Singh Ahluwalia favoured increasing prices of petroleum goods due to the steep hike in global crude prices that was nearing a staggering $100 a barrel.
“If the oil prices remain high on a sustained basis it will have to be passed on to the consumers. I don’t believe capping oil prices is a good way of controlling inflation,” Ahluwalia said recently. The Indian crude oil basket is hovering around $89 a barrel.
Oil marketing companies Indian Oil Corporation, BPCL and HPCL are currently losing over Rs 240 crore per day on the sale of petrol, diesel, domestic LPG and PDS kerosene.
Prime Minister Manmohan Singh has also called for an urgent need to address the problem of mounting subsidies in food, fertilisers and petroleum and asked cabinet colleagues to ponder over the implications of the subsidy bill of over Rs 1,00,000 crore being spent this year.