India is a net importer of oil and gas and imports up to 80 per cent of its requirement from abroad, spending nearly $160 billion every year.
However, due to a combination of factors, the situation unexpectedly turned to India’s advantage when the crude price of the Indian basket fell from $110 a barrel in May-June 2014 to $50 a barrel in January 2015.
Analysts attribute this steep fall in price to host of reasons like demand supply mismatch, availability of cheap shale gas in the US and the rivalry between the 3 major oil-producing blocs – Saudi Arabia led OPEC, the Russia-Iran bloc and the US-Canada bloc.
With this fall, the retail prices of petrol in India dropped from Rs. 76/ litre in September 2013 to Rs. 56/litre in February 2015. Price of diesel, the backbone of India’s transportation sector, fell from Rs. 59/litre in August 2013 to Rs. 46/litre in February 2015. Thus India’s petroleum subsidy burden came down from Rs. 96,800 crore in 2012-13 to Rs. 30,000 crore in 2015-16.
According to experts, India should take complete advantage of this window of low crude prices.
Former petroleum secretary SC Tripathi says, “It’s time for the government to put its house in order, contain both fiscal and current account deficits, take measures to contain inflation and bring down subsidy bill.”
“It’s a good time for India to build strategic reserves. India is already building 3 such reserves in Vishakhapatnam, Mangalore and Pudur to store over 5 million tonnes of crude,” explains former petroleum secretary Saurabh Chandra.
Some experts have also advised the government to acquire oil and gas assets abroad to have control over supplies and prices.
India can also utilise this opportunity to increase coal production and coal based thermal power plants. Savings on oil import bill can also be deployed in developing renewable energy like solar and wind power.
Another option is to completely overhaul India’s decrepit rail network. India was to invest Rs. 8.5 lac crore to upgrade the rail network. But there doesn’t seem to be much progress on this front.
Analysts like MK Venu, Executive Editor, Amar Ujala Group feel, “There is no evidence to suggest that big money saved on oil import has been put to productive use.”
For the moment, international prices of crude oil seem to have bottomed out. In the last three months, crude prices in the Indian basket have gone up by almost 35 %. Prices went up from $46 a barrel at the end of January to $64 a barrel at the end of April.
Retail buyers in India were the first to feel the pinch. In May, public sector oil marketing companies had to revise the price twice. Cumulative hike in petrol price was over Rs. 7/litre and for diesel it was over Rs. 5/litre.
Many say, India hasn’t yet missed the bus, but it should take immediate concrete measures to take advantage of the situation.