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Let’s have more energy on oil

comment Updated: Sep 09, 2014 23:07 IST

Crude oil prices are perhaps the most important variable in India’s complex energy economics.

Dismantling its high-cost energy economy has been a crusade India’s policy-makers have long waged and overdependence on imported crude oil hasn’t helped matters.

India, the world’s fourth-largest oil consumer, imports around 190 million tonnes of crude oil a year — costing $145 billion annually, or more than a third of its total import bill.

Seen in this context, the fall in global oil prices below $100 a barrel couldn’t have come at a more opportune time for the Indian economy that is battling to claw out of its deepest slump in a quarter of a century.

High crude oil prices lead to higher petrol and diesel prices in India. Costly fuel could fan inflation and knock up prices of most goods.

The converse is also true. If the Brent crude graph continues to slope downwards, expect your fuel bills to come down. Analysts expect petrol prices, which are fully market determined, to come down further as early as next week.

Likewise, the creeping increase in diesel costs may also end up setting the stage for finally freeing up diesel prices from administrative control.

The way we have so far gone about freeing fuel prices, however, has left a lot to be desired. Until now, India has changed its fuel prices with an eye more on the election calendar than on the Brent crude graph, losing much of the damping desired and stretching in the process both the buyer and seller.

The latest fall in crude oil prices offers an opportunity to set the clock right. There is, however, a flip side to it. The Indian consumer will be subjected to the harsher discipline of market forces. Even with the subsidy in place, diesel costs more at an Indian gas station than it does in Bangladesh.

Market-determined fuel prices would cut subsidies and help cut taxes on petroleum products. This will help offset the shocks when global crude prices shoot up.

It is high time we took that one big step in India’s energy reforms roadmap.