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Oil pool deficit concerns resurface

Sep 7, 1999

According to newspaper reports, the Oil Coordination Committee (OCC) has been defaulting on its payment obligations to oil marketing companies. The OCC has been constrained by a deficit in the oil pool account, which has arisen mainly due to the delay in upward adjustment of prices of petroleum products in line with the surge in global oil prices over the last twelve months. The sustained increase in the oil pool deficit could lead to a resource crunch at various oil marketing companies, which would then have to borrow funds from the market to carry on their business. This could exert an upward pressure on interest rates (as the quantum of funds involved is very large). However, the more important implication is that as and when rates of petroleum products are revised upwards, there would be an increase in inflationary pressure. The effect of this rise would be large as prices of a large number of products, which use petroleum products in their manufacturing processes, too, would have to be revised upwards.

The deficit in the oil pool account is likely to be corrected once the prices of petroleum products are revised upwards. With the general elections in full swing, it is unlikely that any step will be taken until a new government takes charge at the centre.

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