Can India Break Its Oil Addiction?
India is one of the world’s largest oil consumers, accounting for around 4 percent of global consumption. Only the U.S. and China outrank India in this regard, making it a key player in the oil market.
While India’s oil consumption has seen remarkable growth in the past few years, the recent rise in oil prices may soon force the nation to scale back its reliance on oil importation. In this new oil price environment, continued import growth would put a significant strain on the country’s economy.
India’s Prime Minister, Narendra Modi, has largely benefitted from the slump in oil prices over the last three years, exploiting the low prices by levying a heavy tax on this key commodity. Before Modi came into office, Brent crude averaged $99.43 a barrel. In his very first year, that figure fell by 42 percent before hitting historic lows the following year when WTI dropped below $27.
As the economy has benefited from high taxation on petroleum and diesel, India has experienced a retail energy price significantly higher than that of its South Asian neighbors – with taxes accounting for half of the total retail cost of fuels in India.
As the price of oil fell, the Indian government increased the excise duty on gasoline nine times over the course of three years. The failure of the government to pass these savings on to the consumer resulted in the alienation of the poorer classes of Indian society.
At present, there is a $10.2 billion difference between the market and retail price of oil in India. This gap has led to India having one of the largest state supported societies in the world, with only Saudi Arabia, Iran, Venezuela and China spending more on state support.
A False Economy
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