Monday, June 4, 2012


In a country like India which relies mainly on the oil imports for meeting its needs, all aspects of oil economy should find the topmost concern and priority in country's policies, governance.India is heavily dependent on the imports of oil, in fact 80% of the country's demand is met through imports.The oil demand and requirement is  likely to grow many fold in the light of likely prosperity that will ensue with the passage of time and unless and until the government clears the mess of oil economics through radical policy changes, transparent oil pricing mechanisms and pin pointed governance. The road infrastructure must be improved for its quality, quantity and conformance to international traffic engineering principles at all levels starting with national and state level highways, urban road infrastructure and rural roads.In fact all infrastructure is the key to Indian growth story and the road sector with more than 50% weightage in infrastructure is the all important next gen growth engine of Indian Economy directly through employment and construction activity, logistic support etc. and indirectly through massive savings on oil requirements.
Oil Economy: Pricing and distortions
The Excise, VAT and other taxation accruals from the oil sector are of the order of Rs 2,35000 cr whereas the subsidy burden is to the tune of 1,85000 cr. Through the subsidy or doles to the oil companies to cater for their under recoveries, these companies manage hefty profits a major portion of which accrues to the government in the form of dividend. ( in fact government received Rs 20000 cr as dividend from these companies in the last two years ). No doubt the Indian oil economics over the years has been the goose that lays golden eggs for the government kitty, it is likely to become an eternal bane of Indian economy and Indian growth story in the light of finite nature of oil availability on our planet, the ever increasing requirements of mankind and the awareness amongst the oil producers to milk their limited resources to the maximum.
While the government can neither afford to lose its oil revenues nor pass on even partial burden to the public at large because of compulsions of dirty coalition politics and requirements of vote politics.But it surely can resort to minimizing the effects of oil economy on Indian growth story through following time tested steps guided by reductions in imports and decreasing subsidy burden to control both current account deficit and fiscal deficit.
  • Cutting down Oil wastages and needless subsidies
  1. Toll barriers and slow speeds : Delays at toll cost Rs 87,000 crore every year as per the survey to be released by road ministry out of which the fuel loss is a hefty Rs 60000 crores with an additional subsidy burden of about Rs 20000 crores.
  2. The subsidy cost of pilferage, theft and kerosene consumption by other than the target group is of the order of  Rs 25000 crores.
  3. The LPG earmarked for domestic use finds its way to all kind of commercial activity leading to a gross subsidy of Rs 50000 cr.
  4.  Out of the total diesel subsidy of Rs 1.05 lakh crore, the goods vehicles account for 37.9% and agriculture sector accounts for 18.8% which is desirable. The rest consumed by taxis, cars, other private vehicles, three wheelers, power, industry, railways, defence and others should not have access to subsidised diesel. A saving of about Rs 45000 cr can be easily achieved without any major effect on inflation.                        
  • Use of Biofuel Blends

A 10% blend which is used by countries like Brazil will result in a 10% decrease in oil import bill and  subsidy bill.
  • Urban Transportation Infrastructure and System   
Topmost priority for an effective, efficient, fast, reliable and comfortable mass transportation system for all urban conglomerates with a population of 0.5 million and above rather than individual's own vehicle based model. The high efficiency and low cost of travel coupled with de-congestion of roads can result in massive savings in both, the oil imports and subsidies.
In fact it is time that the rulers and planners of the country understand the implications and full impact of oil economics on Indian economy, for otherwise they can neither attain the high growth trajectory being aimed at nor give a meaningful push to their social welfare programmes. Indian economy and Indian growth story will always be at the mercy of global factors and manipulations as is being witnessed presently. No body can deny the fact that if the Indian current account as well as fiscal deficit had been kept at reasonably low levels, the inflation, high interest rates, economic slow down and devaluation of rupee would not have escalated to such an extent because of global economic turmoil that has almost signalled the onset of disbelief in Indian growth story.