3. India depends on imports for 75% of its oil needs. Analysts feel that the demand for oil will increase further in the future. With the help of facts and figures evaluate the extent of the problem and future threats that India could face due to excessive dependence on imports. What concrete steps should India take to become a less oil dependent economy? • Introduction with figures telling the current dependence of India on imports for oil needs • Figures and facts for problems and future threats due to excessive dependence on imports • Steps to become a less oil dependent economy Let’s start with few statics: Oil – consumption: 2. 22 million bbl/day Oil – production: 880,500 bbl/day Oil – imports: 2. 159 million bbl/day India is on the 8th rank on the oil import index worldwide. (Source: www. indexmundi. com) Oil, being an ‘edge worth good’ thereby implying that it is used in the production and manufacture of almost all commodities, assumes an important role in the decision making process. A nation endowed with large reserves of oil has a strategic importance in the world economy as it is a very lucrative source of foreign exchange. Every nation demands oil and nations with large quantities of it thereby have a bargaining power in the international trade.
Given the importance of oil in the economy of any nation, no country will try to disturb their relationship with the oil producing nations. Also, each country would like to minimize its dependence on oil imports either by exploring oil fields in its own boundaries or by developing oil substituting inputs. There are manifold reasons for this: • An increase in the price of oil in the international market will adversely affect the balance-of-payment situation for an oil importing nation like India. Given that no matter what since oil has to be consumed, the expenditure on oil imports will rise and thereby worsen the BOP situation. The importing nation will lose out on its foreign exchange reserves and this could also have an adverse impact on the value of the domestic currency of that nation (it could lead to depreciation which has a dampening effect by making imports more expensive). Also it will worsen the BOT of importing nation. • Self sufficient strategy can not be met. • Dependent on the vagaries of the prices of oil globally. It can have a huge impact domestically. For Example, problem in Iraq can lead to rise in prices of oil in India, lead by inflation. Most of the industries are given some important basics like fertilisers, cooking gas etc at a subsidies by the govt for price control n social welfare, which are non value adding, whereas these subsidy amount can be used for better productive purposes. • Moreover, any nation would not like to be solely dependent on foreign sources for inputs as important as oil. Due to unforeseen reasons, if the relations with that country dwindle or become weak, the entire economy’s production will be hampered. Thus, having dependence on others for a vital product like oil is not desirable.
Remedies: • Getting into strategic agreements globally in order to get civil nuclear energy development. For example, nuclear deal with America, Kazakhstan, Russia, France, etc. • Encourage oil Exploration Companies support through taxation benefits; • As part of an effort to attract oil majors with deepwater drilling experience and other technical expertise, the Ministry of Petroleum and Natural Gas created the New Exploration License Policy (NELP) in 2000, which for the first time permitted foreign companies to hold 100 percent equity ownership in oil and natural gas projects. As a net importer of oil, the Indian government has introduced policies aimed at increasing domestic exploration and production (E&P) activities. • In order to address the challenges, Indian companies are recruiting foreign firms with greater experience and more sophisticated technology. • Encourage the use of Renewable resource as a substitute for oil gas such as wind and solar energy to meet the nation’s needs: Installation of high-powered wind turbines in the place of old, lower capacity machines, intercropping of small windmills among bigger machines, development of offshore wind farms and development of hybrid turbines are some of the important needs toward the rapid growth of wind industry in India which is a major substitute for oil energy and is also a renewable resources. o India should not only rein its long-term carbon emissions, but do so without compromising on its economic growth potential, with renewable resources like solar becoming the backbone of India’s economy by 2050.