Critically analyse the impact of too high and too low oil prices on Indian economy.|
Energy forms backbone of Indian economy thus India’s energy needs are set to grow 4.2% per year till 2035. Oil and gas forms an important part of India’s energy basket. India imports more than 80% of Oil and gas it consumes thus international oil prices have major impact on Indian economy.
- Lower oil prices help in reducing fiscal and current account deficit. Higher prices lead to higher subsidy pay out to OMCs and higher import bill.
- Reduction in energy prices leads to lower inflation.
- lower oil prices reduce cost of fuel and loss wastage (cost incurred for running the refinery and the fuel lost in the system) for OMCs
- Lower prices tend to have a positive effect on demand for products.
- India is a large exporter of petroleum products and lower oil prices lead to reduction in export value.
- For upstream oil companies— Oil and Natural Gas Corp. Ltd and Oil India Ltd, lower oil prices translate into lower net price realization. Thus lower crude oil prices pose a risk to any potential expansion in valuations in the near future.
- Lower oil prices negatively contribute to financial market as oil rich countries used to deploy excess funds in emerging markets withdraw money from the global markets as revenue falls.
- Fall in oil prices affects large number of Indians working in Gulf countries and remittances sent back home.
Fluctuation in oil prices impacts Indian economy but India is seeking to diversify its energy sources by developing renewable energy and nuclear plants, exploring own reserves etc to achieve energy security.
Topics: GS-III: Indian Economy Issues Relating to Planning