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Falling prices, advantage India?

 MPost |  2015-01-17 23:36:05.0  |  New Delhi

The government on Friday reduced petrol prices by Rs 2.42 per litre and diesel by Rs 2.25 a litre after an excise duty hike limited the benefit of global crude oil prices that slumped to a six-year low to $46 per barrel. According to various news reports, the reduction would have been almost double, but for the government that raised the excise duty by Rs 2 per litre on both petrol and diesel. This is the ninth straight reduction in petrol prices since August and fifth in diesel since October.


The deputy governor of the Reserve Bank of India Urijit Patel said that according to his estimate, lower oil prices will save the country $50 billion in import charges. The government’s decision to hike excise duty in petrol and diesel prices fulfils the parameters of fiscal prudence, since it will allow the government to shore up its finances. Nonetheless it does not seem to have taken full advantage of the fall in global crude oil prices. There is a death of storage capacity for oil reserves in India. Most major oil importers around the world have reserve capacities for as much as 90 days.

India, however, has little in comparison. After oil prices began to tumble in September, the Centre had chalked out plans to set up at least four more strategic oil reserves in the country in a bid to store adequate stock for meeting 90-100 days requirement during any crisis. At present, there are three strategic reserves — one in Andhra Pradesh and two in Karnataka.  However, what is clear is that thoughts surrounding developing greater oil reserve capacity only began to come up once oil prices began to fall.

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