Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
From UPSC perspective, the following things are important:
Prelims level: OPEC
Mains level: The newscard discusses the rising crude oil prices and its effects on India.
What is the issue?
- Crude oil price is about at about $70 a barrel, marking a four-year high and a price increase of close to 6% since the start of the year
- The rise in international prices has been particularly sharp given that oil had been selling at below $45 in June
- This is an increase of about 55% in a matter of just months
Reason behind this up and down in prices
- Oil price dynamics have often been explained by changes in the supply outlook influenced by the decisions of major oil producers
- But the recent spurt in oil prices, however, seems to be more the result of a weakening of the U.S. dollar than anything else
Effect of high prices on OPEC countries
- Oil trading at $70 should offer some respite to traditional oil producers like the OPEC members, which have suffered the onslaught of U.S. shale producers
Effect of oil prices on India
- Consumers in India are already beginning to feel the pinch as petrol and diesel prices have hit multi-year highs
- The retail selling price of both petrol and diesel in Delhi, for instance, has risen by close to Rs. 3 a litre since the beginning of 2018
What should be done from the government side?
- As rising oil prices put pressure on domestic consumers, the government will have to desist from resorting to subsidies to ease the pain
- It should work towards rationalising taxes on petrol and diesel to bring down retail prices
- This will help consumers without imposing an undue burden on the oil marketing companies
Effect of oil prices on India’s fiscal
- With the fiscal windfall from low oil prices likely to end for now, the government should think for the long term
- And make crucial tweaks to its hydrocarbon exploration and licensing policy to expedite oil discovery and production
- Simultaneously, it must take a leaf from China’s book and actively support Indian energy firms’ bids for overseas oilfields
- Self-reliance is ultimately the best hedge