India which imports more than two-thirds of its oil requirements has a variety of crude representing a derived basket comprising of sour grade (Oman and Dubai average) and sweet grade (Brent genre) of crude oil. Indian basket crude oil which averaged $107.97 in 2012-13 and $105.52 in 2013-14 per barrel has been averaging around $99.46 till recently. It is providentially plummeting in the wake of a close to 40 per cent dramatic drop in global crude prices. With the latest OPEC decision not to cut output in a new gambit to pose a very aggressive test for U.S shale oil so that the latter cannot be competitive to fossil fuel in a market awash with oil and where more than a million barrels per day over and above 30 million barrels a day is sloshing, the crude price is sure to stay comfortably low for the present. This offers a golden opportunity to countries like India to undertake some policy changes by keeping the lower priced imported crude duly stored in caverns now to insulate itself against future spikes in spot prices that remain as uncertain and dramatic as the recent decline.

No doubt, the authorities had been taking painful measures to contain the huge outgo on crude oil import down the years in a losing battle to cut import cost, trade deficit and inflation, besides the burgeoning fuel subsidy. Although the administrative pricing mechanism (APM) was dismantled by the Vajpayee Government way back in 2002, petrol/diesel/gas price was seldom set free lest the various user constituencies should find the going tough in the wake of unrelenting rise in global crude prices. This was so even as the global crude prices shot up too fast to afford or sustain the attendant bloating subsidy bill. This cut sharply the domestic oil marketing companies (OMCs) that had to bear the daunting burden which made even their normal operations jerky with swelling under-recoveries. Hence, the previous UPA government resolved that the price of all petro products including petrol and diesel to make it market-determined to be appropriately adjusted by the OMCs. Since January 17, 2013 the government authorized the OMCs to increase the retail selling price of diesel in the range of 40 paise to 50 paise per litre per month (excluding VAT) and sell diesel to all consumers taking bulk supplies directly from the installations of the OMCs at the non-subsidized market determined price. This was initiated by the UPA government despite its absolute dependence on allies for survival in taking tough decisions that might earn the displeasure of all fuel-subsidized constituencies.

However, the Modi government that came to power in May this year got a sort of reprieve with the steady fall in the global crude prices especially in the last couple of months. It took the boldest step of totally decontrolling diesel price in November, letting it to be determined for all consumers by the market. This meant the diesel subsidy exacting 0.3 per cent of GDP last year would now be off the burden of the exchequer henceforth in one fell swoop.

In the case of kerosene, the quota has been rationalized over the years for the State and through it to the public distribution system (PDS) so that the subsidy burden could be lessened. For the cooking gas or LPG, effective September 12, 2012, the government decided to cap the supply of subsidized domestic LPG cylinders for each domestic LPG consumers to six cylinders (14.2 kg) per annum, though this was subsequently increased to 12 cylinders since January 30, 2014 in the run-up to the 2014 May General Election. But in one of its far-reaching incremental reforms, the new Government launched Modified Direct Subsidy Transfer of LPG (DBTL) scheme in mid-November in 54 districts for direct transfer of subsidy on LPG. The scheme is proposed to be extended to the rest of the country effective from January 1, 2015 so that diversion of domestic LPG or cornering the benefits of targeted category by unscrupulous elements with nefarious designs can be thwarted. As a result of all these decisions taken over the last couple of years by both the erstwhile UPA and the present dispensations, the latter more resolutely, the under-recoveries sustained by the OMCs which stood at Rs 92,061 crore for diesel in 2012-13 fell to Rs 62,837 crore in 2013-14 and to Rs 11,656 core in the current fiscal upto October 18, 2014, the Minister of State for Petroleum & Natural Gas Mr. Dharmendra Pradhan said in a written response in the Lok Sabha on December 1, 2014. One is led to be optimistic that the OMCs under-recovery burden would definitely be alleviated, if not eliminated.

Even as the evolving lower crude oil price scenario would enable the saving on import bill and the concomitant lower pressure on subsidies to be effectively utilized for capital expenditure on competing development programmes including national oil companies’ upstream activities, the authorities should take steps to make greener energy and unconventional sources including solar, wind, thermal and biomass more attractive through pragmatic supportive measures.

It is also time India beefed up its strategic energy security through the Indian Strategic Petroleum Reserves Limited (ISPRL) that is setting up strategic crude oil reserves with storage capacity of 5.33 million metric tonnes (MMT) at three locations viz, Visakhapatnam, Mangaluru and Padur (near Mangaluru) to enhance the energy security of the country. It is also time the government dusted off a blueprint prepared by the Engineers India Ltd (EIL) for the ISPRL a detailed feasibility of study for construction of additional 12.5 MMT of strategic crude oil storages in Phase II at four locations of Bikaner, Rajkot, Chandihol (Odisha) and Padur. Once on stream these seven storage facilities of 17.83 million tones requiring less than $10 billion at today’s cost, against the oil import bill of $143 billion in 2013-14 and coupled with extant commercial storage of crude and products vested with the oil companies would go some way in according energy security against uncertainty in future supplies of oil in a volatile market.

Energy experts contend that the gratuitous opportunity of soft global crude price is the right moment to seize and strengthen India’s long-term energy security through the construction of more storage caverns for oil, orchestrate conservation programmes among all oil-consuming segments and make a conscious shift to green and unconventional energy by degrees. As the Modi government chants “Make in India” mantra to drive domestic manufacturing, energy is the linchpin and more the country is able to save and diversify its sources, the better it would be for securing and succeeding in the manufacturing mission, policy experts say. (IPA Service)