SURVEY SIGNALS REDUCED HEFT OF OIL PRICE IN POLICY SPACE
NEWDELHI: The Economic Survey signalled the reduced heft of crude oil prices in India’s national economic policy making. “It has become almost an involuntary reflex to cite geopolitics in the list of risks to oil prices, and hence to domestic inflation. But these risks may well be diminishing substantially,” the Survey said.
“The oil market is very different today than a few years ago in a way that imparts a downward bias to oil prices, or at least has capped the upside risks to oil prices,” the Survey added.
This is a marked shift from the Survey’s January caution on rising oil prices presenting a challenge to India’s growth, as articulated in the first volume of the Survey presented this year.
“Some possible challenges to growth exist. For example, the prices of crude oil have started rising and are projected to increase further in the next year. Estimates suggest that oil prices could rise by as much as one-sixth over the 2016-17 level, which could have some dampening impact on the growth,” the Survey had said on January 31.
The crude oil price’s importance in the policy stratagem stems from India’s oil and gas import bill, with the country paying around ₹4.16 lakh crore and ₹43,782 crore respectively in 2015-16. However, this is set to change, with the govt’s plan for a mass- scale shift to electric vehicles by 2030 so that every vehicle on roads by then—both personal and commercial—is powered by electricity. Also, India has started selling petrol and diesel in sync with international rates from June as part of the strategy to completely overhaul of the Indian fuel retail market.
Experts remained circumspect. “There is a view that oil prices will be down for a longer time. However, it is better to look at demand rather than prices,” said Saurabh Chandra, India’s former petroleum secretary.
The average price of crude oil in the Indian basket has fallen from $52.49 per barrel in April to $47.86 in July. The Indian energy basket represents the average of Oman, Dubai and Brent crude.
“In sum, geopolitical risks are simply not as risky as earlier. Technology has rendered India less susceptible to the vicissitudes of geo-economics (OPEC) and geo-politics (Middle East). If, and to the extent that, changes prove permanent, the consequences for the inflationary process need to be taken into account,” the Survey said.