Why the import dependency for oil makes the Indian energy needs vulnerable? How does it make strong case to diversify the energy market?

Published: October 22, 2018

India is one of the fastest growing economies of the world. The energy sector is the key driver for the emerging economy of India. The energy sector in India is oil driven. The import dependency of India for oil makes the energy sector more vulnerable.

Why the import dependency for oil makes the Indian energy needs vulnerable?

  • India meets over 80% of its oil demand through imports.
  • This makes the Indian oil market vulnerable to the external situations.
  • Oil prices have increased by nearly 70% in last one year.
  • The strengthening of dollar against rupee is causing a double whammy on the Indian consumers.
  • The irrational practice of Asian premium is further burdening the Asian economies like India.

Why there is a need to diversify energy market?

  • The over dependence of Indian energy market on the imports may choke the economy as a whole. Indian economy cannot be at the mercy of the external factors. This makes a strong case for diversification.
  • Near monopoly in the global energy market makes India more vulnerable. Hence it is a high time for India to diversify the energy basket.
  • The import dependency and the dollar based payment system will further make the imports uncertain. The uncertainties will adversely impact the economy as a whole.
  • The increasing prices may lead to inflation. This will adversely affect the growth.
  • Import dependency for energy needs will leave India with fewer options to tackle the challenges. This makes the Indian economy vulnerable.

These reasons make a strong case for diversification of energy market. A strong policy framework which envisages tapping on the domestic sources of energy supply while simultaneously encouraging consumers to switch to green alternatives will make the energy market in turn the economy more resilient to external shocks.

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