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Global trends to push up oil prices in India
Tuesday, 11 May 2004, 19:30 IST
NEW DELHI: India will soon have to bite the bullet and raise the prices of petroleum products in keeping with global crude oil trends, a move that will impact the economy and the lives of average consumers, say experts.
For India, the hardening of crude prices is a matter of great concern with the country's dependence on imports for 70 percent of its requirements.
The price of Brent North Sea crude in London for delivery in June rose to a 13-year high Friday at $37 dollars a barrel while in New York, the price hit $40 a barrel for the first time after October 1990, when Iraqi troops had invaded Kuwait.
"India can delay the decision to raise the prices in the domestic market for some time, but sooner or later it is bound to do so with consequent impact on the domestic financial system," said R. K. Sinha, an energy expert with think-tank Centre for Policy Research.
"The increase in domestic prices would have to be substantial in keeping with the hardening of international prices. This would not only raise the energy cost but also impact the transport and manufacturing costs and thus severely impact our competitiveness in the global market," said Sinha.
He felt the new government that comes to power later this week would have to take measures to protect the industry and offset the impact of the spiralling crude oil prices.
The experts are not too confident of the crude oil prices softening in the near future unless the Iraq issue settles, which seems unlikely with more murkier revelations surfacing everyday about the inhuman treatment of Iraqi prisoners.
At the same time, the high US demand and Chinese purchases are among major reasons for the oil prices hardening, particularly over the last 10 days.
"So far, Indian consumers have been cushioned from any oil shock by the state-owned oil refineries and marketing companies, which have not raised the prices (since January). But they cannot sustain this for long," said A. V. Nayak, deputy director and energy expert at the Confederation of Indian Industry.
Though Petroleum Secretary B. K. Chaturvedi last week dismissed any sharp hike in prices of petroleum products, experts said it is inevitable.
The longer the delay in hiking the prices of petrol and diesel in the domestic market, the greater would be the impact consumers would have to bear in the long run, warned Nayak.
"After elections, the oil marketing companies may go in for quick revisions in succession," he said.
With the private refining companies like Essar and Reliance still to enter the retail market in a big way, they will toe the state-owned companies for some more time to retain the slowly expanding base, the experts said.
In a report last week, the global watchdog International Energy Agency (IEA) had warned that a $10 price increase per barrel of oil sustained over one year could trim about 0.8 percent off Asia's overall economic growth, bringing higher unemployment and inflation.
In India's case, the IEA forecasts a one percent drop in economic growth if the present high crude price trend continues.
"India uses more than two and a half times as much oil as developed countries per unit of GDP, while the economies of China, Thailand and African countries are also very oil intensive. It is estimated that oil imports cost India $15 billion or three percent of its GDP in 2003," the IEA report states.
Oil import bill of developing countries like India has increased 16 percent between 2001-03.
Experts are banking on the Organisation of Petroleum Exporting Countries (OPEC) to raise the output and lull fears of possible disruption in supplies.
Opec oil ministers are scheduled to hold consultations in Amsterdam on May 21 on the sidelines of an energy conference to review the situation. In March, the OPEC agreed to cut daily output quotas by one million barrels to 23.5 million from April 1, one of the reasons for pushing up prices.
Source: IANS
Source: IANS