To understand the current economic problems in India, it will be better at this stage to remember that the economic reforms in India were introduced by the PV Narsimha Rao Government not as a well thought out plan, but in response to the fact that India was going bankrupt having by that time mortgaged a part of its gold reserves. There was no way that the World Bank was going to give us any more loans then, unless we agreed to set our house in order and make efforts to be in a position to repay such loans.
The country has done extremely well since. And because the people of India were angry, hurt and humiliated at the mortgaging of Indian gold, no Indian politician except perhaps the Left dare fiddle with the economy any more. Just as 1962 was a watershed for Indian politicians to stop interfering with the armed forces and ensure that they are strong, 1990-91 became the landmark from where the economy was no longer to be a plaything for politicians. Indians would like to see greater gold reserves than the family gold being mortgaged!
That having been said, the current crisis caused by increase in crude oil prices, people think, has not been handled properly by the Indian administration. The latest knee jerk reaction in raising duties on so-called larger cars is a populist measure with no relevance at all to the problem at large.
Indian politicians perhaps do not know that here in Central London one Indian vehicle seen on the roads is India's own tiny 'Reva', a car that does not use oil. Japanese have already put out hybrid models that run both on oil and electricity. With the kind of innovative skills that Japan has, they could soon come up with a real long life battery to run the big cars. Our own young enterprising people in Bangalore could perhaps beat them to it. Let it be understood that cars are not the reason for the oil crisis.
The cause of India's problem, attributed to high oil consumption, lies somewhere else. How is it that the three very intelligent people in Delhi - Manmohan Singh, P. C. Chidambaram and Montek Singh Ahluwalia, running the country's economy can't see that right under their nose the huge new sprawling city of Gurgaon is running virtually on diesel oil? The Haryana State Electricity Department is hardly able to provide power for all those brightly lit and shining Malls, the high rise towers and flood-lit golf courses.
India's crisis lies in its failure to develop infrastructure to keep pace with its growth. Not just the roads-look at the pathetic record of UPA government in the slow down that the highway project has suffered; it is the power sector that is pulling India down now. India should to speed up building of new power plants not just to meet the immediate demand but it must look at least 20 years ahead with a minimum of 40 percent surplus power availability. That alone will keep our oil consumption in check.
When our oil companies were flush with enough cash, they should have been looking at oil assets abroad, like their Chinese counterparts. The government forced these companies to blow up their money by selling petrol, diesel and kerosene and LPG well below the price that it cost the refineries to produce. . The current steep hike in oil prices ordained by the government came about only because these companies (like the country in 1990) were about to go bankrupt. Is this the way that the three intelligent men running the economy of the country should have acted?
The nation needs to get clear answers from the government:
(1) as to why it failed to take action in setting up power plants to meet the growing need for energy,
(2) If nuclear energy is the solution then why has the government not signed the Nuclear Deal and exposed the left for the way it is damaging India's interests by delaying such a deal and
(3) why bigger investment has not been made both at home and abroad to get access to fresh oil assets? And lastly
(4) why prices of petroleum products were not raised when the global prices went up and why was these huge shocks given at one go precipitating huge inflation?
These are very pertinent questions that need answers from the government. Agreed that the power plants cannot come up overnight, but somewhere the work has to start and the country needs to find a Sreedharan for the power sector-one who will meet the deadlines like Sreedharan has for the Metro.
Coming back to the developing oil crisis: Even as Saudi Arabia and OPEC's Abdullah al Badri announce increase in output, that may still not bring down the prices. This global crisis --apart from mismatch between demand and supply --is because of the continuing weakness of the dollar. Daniel Yergin, the author of the Pulitzer winning book "The Prize: the Epic Quest for Oil, Money and Power". Also Chairman of Cambridge Energy Research Associates says that the liquid black is the new gold. It is because it has become a hedge against the dollar.
Let us not make any mistake: there is no shortage of oil. There are more than enough oil wells around the world and new oil fields are being added which could produce enough oil for another 100 years, if not more. The current problem lies in the continuing fall in the value of dollar. Tragically India's rupee is linked to the dollar.
Other factors responsible for the oil problem are the lack of petroleum engineers around the world and lack of availability of enough rigs to look for more oil. In India's case it is our failure to make timely investment to look for oil at home or abroad.
Look at the scenario- Alexei Miller of Gazprom has forecast that the price of oil could go as high as 250 dollars per barrel; Jeff Rubin of CIBC Canada talks oil price touching 225 dollars per barrel, and oil billionaire Boone Pickens says it will stay around 150 dollars per barrel. But no one from the oil industry is talking of oil price coming down in the foreseeable future. One wishes that these forecasts go wrong!
If India is to avoid the crisis turning into a disaster, she has to think and think fast. First, has the time come when oil should no longer be treated as an item that can be taxed? Second, how is India to involve some of its own people preferably young new entrepreneurs rather than established huge companies in oil exploration? and third, how and at what speed can India generate enough electricity to meet the needs of the farms, factories and its cities?
There is no time left for long- winded debates. The decisive moment is now. Failure to tackle the questions raised above could well unleash inflation of dangerous proportions endangering the very fabric of Indian society and its economy.
There is a disaster in the making. Will the government rise to the occasion and meet this challenge?