Wednesday, October 23, 2013


Oil economics the biggest thorn in the Indian growth story needs immediate attention by the planners and rulers of India. Its contributions to the fiscal and current account deficits of the country and resulting inflation, rupee devaluation and deleterious effects on the economy  are so huge and long lasting that no government can afford to be slack in seeking permanent remedies to the malady of oil economics.
In majority of the countries oil economy leads to current account deficit only but in India because of political compulsions of the government for its survival and its reliance on vote bank politics for attaining winning ability in elections through major subsidies in diesel, gas and kerosene, fiscal deficit emerges as an equally damaging factor. The government has been unsuccessfully trying to stick to its self professed yardstick of sub 5% individual budgetary deficits on both counts. The logic of 5 % deficit is not fully understood and one is kept wondering whether reducing these deficits further will have deleterious effects on the economy?????
The current account deficit ( CAD ) of India is soaring and soaring and in fact has been the bane of Indian growth story for quite sometime now. During the last about 15 years, the reigns of NDA and UPA I, the current account deficit to GDP hovered  from -2.3 to 1.5 and everything from inflation to rupee value to growth rates were in order. Then with the beginning of era of UPA II, everything went hay way. No doubt the global economic picture was not in the best of shapes but it was policy and governance paralysis which was main culprit in the sudden spurt of CAD which wrought havoc on the Indian economy. 
Crude oil imports, gold imports and dwindling exports are the main culprits of exploding Indian CAD. In a global reality, everybody knows that crude prices will keep on rising as the global demand keeps on rising and the crude reserves keep on diminishing every day. Instead of taking any concrete action to find a long term solution to this malady, the Indian polity was busy fooling the nation by taking credit of reductions in oil import bill as a result of  fall in international prices. The Indian rulers are still none the wiser in accepting the crucial role of oil economics in the Indian growth story and oil economics have been allowed to remain the eternal bane of Indian economy and Indian growth story. Indian rulers and policy makers simply wait for cyclic reductions in oil prices to sing their song of achievements on this front and wait patiently to blame world economy on the next upturn of oil prices.
While nations have improved their oil economies through use of bio fuels, improvements  in the road network and mass transportation systems with specific reference to quality of roads and smooth flow of traffic, very little has been done in India on this front. In fact the country is still to realize the importance of improving the quality of ride, removing traffic jams and making energy efficient transport systems. While the world is talking about 'hidden fuel worth hundreds of billions' : IEA's new energy focus so much so that energy efficiency has not only being termed as a hidden fuel bur world's first fuel. India has to manage its oil economy with lot more seriousness to explore fully the potential of this game changer in Indian growth story.