It is alarming that brent crude oil price touched $ 140 per barrel. Some credible study groups are of the view that if Russia Ukraine war were to continue any longer , then brent crude oil price may increase even further.
by N.S.Venkataraman
The Oil Marketing Companies ( OMCs) have now raised the price of diesel for bulk users by Rs.25 per litre, resulting in industrial users having to pay Rs.115 per litre in Delhi and Rs.122.05 per litre in Mumbai and higher price in several other states all over India. Further, LPG for domestic price has been raised by Rs. 50/- for cylinder and some increase has been announced for the price of petrol too.
While everyone understands that India is now facing crude oil supply crisis in price term due to Russia’s invasion of Ukraine, people wonder whether in the face of this crisis, rising the price of fuel is the only option left for India. People also doubt whether the Government of India has carefully examined the other options, instead of exercising the familiar and easy option of increasing the price, unmindful of the consequences. The raise will indirectly impact end consumers severely.
Excessive import dependence on crude oil :
It is alarming that brent crude oil price touched $ 140 per barrel. Some credible study groups are of the view that if Russia Ukraine war were to continue any longer , then brent crude oil price may increase even further.
India imports more than 230 million tonne of crude oil per annum, with the outflow of foreign exchange due to crude oil import at present ( before this recent crude oil price hike) more than 27% of foreign exchange earnings. The present production of crude oil in India is only around 32 million tonne per annum and it is unlikely to increase significantly in the immediate future. Further, the demand for crude oil in India and consequent import has been increasing at 5 to 6% per annum and this trend is likely to continue.
With the rupee now breaching 77 per US dollar for the first time and global brent crude oil price increasing at alarming level, the implications for Indian economy and industrial activities could be very severe.
Fuel price increase not desired option :
To tackle such extremely difficult situation, Government of India should not repeat it’s strategy of increasing the price of fuel for industrial and domestic consumers. The price of fuel is already very high considering the purchasing power in the country. Further increase in price of fuel would lead to unbearable cost push inflation and upset the economics of industrial and commercial operations and bring social and economic misery to the people.
Curtail the consumption :
In such situation, the one feasible option , left for the government is to curtail the consumption of fuel / crude oil in the country to the extent possible , so that the outflow of foreign exchange due to import of higher priced crude oil will not strain the economy beyond acceptable level. This is a feasible proposition , considering the grim situation faced by India on energy front. This option may not be relished by section of people but the government has to bite the bullet for the sake of sustaining the national economy and ensuring that industrial growth would be sustained without being upset by the severe rise in the fuel price
The government should consider the following suggestions.
Internationally more than 50% of the crude oil consumption ultimately goes for road transportation sector. The situation is almost similar in India also.
As substantial portion of crude oil are processed and used for transport sector, all petrol bunks in the country should be fully closed on Sunday. On all other days, the public transport such as bus, train should be asked to curtail the services by 50% , until the brent crude oil price would come down to less than $100 per barrel
To reduce the travel , all public and private sector organisations should be asked to implement work from home policy for their employees to the maximum extent possible.
In the case of industries, wherever possible, coal or biomass should be used as fuel instead of crude oil based petroleum products .
People should be asked to form a pool for transportation together ,wherever feasible. Ministers and bureaucrats should set an example by not using individual vehicles. The politicians are known to use of fleet of cars when they move from one place to another. Such practice should be banned.
During the covid pandemic period , India implemented successfully severe restrictions to reduce travel in variety of ways. People cooperated.
Curtailing the transport would result in optimization of transport utilization and curtail fuel consumption significantly. In such case, if and when the crude oil price would increase in the next few weeks, India would use less crude oil and will not spend more foreign exchange for import of crude oil.
Ofcourse, some critics would insist that government should reduce the taxation on fuel to keep the price low. This will serve only limited purpose and there is a limit beyond which the taxes cannot be reduced. Marginal reduction of taxes would provide momentary satisfaction to the people but such approach is short sighted. After all, government needs money and income by way of tax, particularly in the present situation when huge outflow of funds are required for various welfare programmes to help the people in the lower income group.
Take the countrymen into confidence :
Prime Minister should talk to the people over television and tell them that the countrymen that they should see the writing on the wall due to steep hike in the global crude oil price.
Prime Minister should appeal to the people to keep their travel plans to the minimum strictly depending upon the need.
Further, Prime Minister should promise to the people that above such restrictions would be removed , when the brent crude oil price would come below $100 per barrel.
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