Government has to get its act together to reap the benefits in the long term
Once again, crude oil prices seem to favour the Modi government, which has been facing much flak for the country’s economic situation.
But is the government prepared to turn the steep fall in oil prices to its advantage or will it become a case of another missed opportunity?
“The oil price crash comes at an inopportune time for the energy-hungry and import-dependent Asian economies,” said Vandana Hari, founder and CEO of Vanda Insights.
“It may provide marginal relief, but it is no match for the debilitating economic impact of the coronavirus. It could, thus, end up being a lost opportunity as it is unlikely to spur consumption.”
Economic uncertainty is a huge dampener on spending, she said, adding: “Had India been ready with its strategic storage infrastructure, it could have filled it up with cheap oil. Overall, the cheap oil this time also comes with huge uncertainty — the OPEC+ alliance could get back on track. So, it is going to be hard for countries to plan their spending based on today’s prices.”
Indian Strategic Petroleum Reserves Ltd is responsible for building buffers. Currently, it has 5.33 million tonnes of underground strategic reserve facility in Visakhapatnam, Mangaluru and Padur (Karnataka), while another 6.5 mt facility is coming up at Padur and Chandikhole (Odisha). Work on two more facilities — at Bikaner in Rajasthan and Rajkot in Gujarat — will be initiated soon.
What works for India
But does the price offer any comfort? Energy expert Narendra Taneja says, “Neither ultra-low nor ultra-high prices are good for India. Prices that encourage growth in both the exporting Gulf countries and India are good for us; after all, nearly 10 million Indians work in the GCC countries, who send over $40 billion in remittances.”
The price which should keep everyone happy is $60 a barrel, he said, adding: “Ultra-low prices may help India in the short run but can hurt in the medium to long run.”
But for the main Opposition party, the Congress, the low crude prices offer a new ammunition against the government. The party has urged the government to pass on the benefits of the low crude prices to the common man, by reducing the retail rates of petrol, diesel and cooking gas.
“The Modi-Shah government must pass on the relief of record low crude oil price to the people of India against the stagflation (rising inflation combined with economic slowdown) and rising unemployment by lowering petrol/diesel/LPG rates in consonance with the huge fall in international crude oil prices,” it said in a statement.
“In dollar terms, the international crude oil prices are down to the level of 2004 November, when petrol, diesel and LPG were available at ₹37.84, ₹26.28 a litre, and ₹281.60 per cylinder, respectively… For the last six years, the government and oil marketing companies have been making huge windfall gains amounting to lakhs of crores per year. The BJP government has looted more than ₹16-lakh crore in the last five years by charging exorbitant taxes on petrol-diesel,” charged the party statement.
It said: “The central excise duty has been hiked more than a dozen times since the BJP came to power. It has been increased by 218 per cent on petrol and 458 per cent on diesel by the Modi government since May 2014.”.
The consumer would certainly want the duties — which account for the major portion of retail price — reduced and pump prices lowered. But the government would prefer to raise them to maximise revenues.
Now, all eyes are on the government if it will tweak the excise duty and other levies