Wednesday, January 9, 2013

OIL ECONOMICS : A THORN IN INDIAN GROWTH STORY

There is a lot of noise regarding diesel price hike in the light of Kelkar report.The finance minister of India, Mr Chidambaram is on course to deregulate diesel prices and is likely to unveil a blueprint for abolishing subsidy in the coming budget. A small increase in the price of diesel, kerosene and LPG ( cooking gas ) will make a small dent on the overall subsidy bill of  about Rs. 1.5 lakh crores. If the subsidy is totally removed, imagine what havoc it will play with inflation, which as it is at 7.5%, much beyond the comfortable level of about 5% as per Indian planners. Along with being a major contributor to fiscal deficit, the oil imports are a major contributor to current account deficit also.Now consider the Indian scenario after a decade or so. The oil prices are likely to skyrocket as the global reserves keep on going down year after year. The Indian demand will keep on growing as India progresses and more and more of its citizens will be able to afford personal vehicles and travels for holidaying. In this context is Indian oil economics an eternal bane of Indian economy and its growth story ? Indian nation has to find some out of the box solution  to get out of this catch 22 situation apart from some austerity measures on the part the government and its citizenry.