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The government wakes up to looming oil crisis - Views on News from Equitymaster
 
 
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  • Mar 10, 2000

    The government wakes up to looming oil crisis

    In a report carried earlier by equitymater.com, it had been highlighted how the oil crisis was growing out of control even as the government failed to take any measures to tackle the same. Now however there are reports that the government has finally woken up!

    The government it seems was under the impression that by reducing the customs duty by 5% it would be able to tackle the growing oil pool deficit. A reduction in customs duty would reduce the differential between the cost and retail price of petroleum products, thus reducing the subsidy component. However, with the oil prices having touched a high of US$ 34 per bbl, the red lights have begun to flash once again.

    India’s import bill is likely to more than double to US$ 13 bn in FY00. However, with prices rising continuously, prospects for the coming fiscal year have deteriorated further. The government needs to take concrete measures to control the deficit.

    One way would be to further reduce the customs duty on crude imports. Then there needs to be a realignment of prices in line with the higher costs of production. And finally, as a long-term measure, the government needs to decontrol product prices in order to prevent the occurrence of a similar situation in coming years.

    Given the politically sensitive nature of this issue, it is unlikely that the government will be able to implement any radical decision. However, even a step in the right direction could help minimise the fallout of such a situation.

     

     

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