What is the issue?
- The declining trend in global crude oil prices has started to reverse.
- It calls for the government to take notice and formulate appropriate energy policy in terms of price and energy options.
What was the three year trend?
- India witnessed a three-year oil bonanza starting from the 2014-15 period.
- The average price of the Indian basket of crude oil was around $46 a barrel in the last year.
- The resulting gains were substantial for the oil sector, the economy, and the government.
- Oil companies began turning in higher profits and retail selling prices for petrol and diesel also relatively fell to an extent.
- Resultantly, the Union government’s subsidy bill for petroleum products declined significantly.
- It also used the opportunity to increase taxes on petroleum products to reap the benefits from falling crude oil prices.
- Its excise duty collections during these three years saw a cumulative annual growth.
- This in turn contributed to staying on the path of fiscal consolidation.
What are the recent developments?
- The declining trend in oil prices has started to take a turn from the beginning of 2017-18.
- The average price of the Indian basket of crude oil has risen in the recent months.
- The latest numbers crossed the $60-mark for the first time this year for two consecutive months.
- Retail prices of petrol and diesel have also inched up compared to prices in the previous year.
- In response, the government intervened recently to reduce excise duty on petrol and diesel, resulting in an annualised revenue loss.
- As a consequence of higher crude oil prices, the government’s petroleum subsidy bill has also risen.
How does the future look?
- There are no signs of the international crude oil prices declining from their current elevated levels.
- However, India’s energy demand in the next few decades is expected to increase faster than that of any other large country.
- India's dependence on energy imports would also rise in the coming years.
- Technological developments and sustainability issues are also getting to be considerable challenges.
What should be done?
- The challenges and limitations have to be considered in government's pricing of energy products and fiscal policy options.
- The government should refocus its attention on an integrated energy policy.
- The feasibility and scalability of the renewable energy sector should also be given enough focus in the energy policy.
Source: Business Standard
