The Hindu : Front Page : Surging oil prices erode growth, says Chidambaram

Online edition of India's National Newspaper
Monday, Nov 27, 2006
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Surging oil prices erode growth, says Chidambaram

Sushma Ramchandran

Oil producers exploiting consumer nations

New Delhi: Finance Minister P. Chidambaram on Sunday described surging global oil prices as "speculation-driven" and said India was being "robbed" of at least one per cent GDP growth as oil producing countries allowed prices to reach record levels.

Addressing the India Economic Summit organised by the World Economic Forum and the Confederation of Indian Industry here, Mr. Chidambaram accused oil producers of "exploiting" consumer countries like India.

"Great injustice"

He said "great injustice" was being done to developing countries as a result of the volatility in oil prices. He did not accept the argument that the soaring prices were due to demand-supply constraints as otherwise prices would not have fallen from $78 to $55 a barrel recently.

He said India could have easily achieved 9 to 9.5 per cent growth, but for the high prices.

If the developed countries were serious about achieving the Millennium Development Goals to alleviate poverty in developing countries, they should not allow this "exploitation." As Finance Minister he had to pre-empt a large chunk of revenues in the budget to support oil companies in the form of bonds.

Referring to the Russian economy he said the country's budget was based on oil prices of $45 a barrel but when the oil price spiralled to $78 a barrel, the economy had a windfall. He expressed the hope that better sense would prevail among the oil producers. If this happened, it would be possible for developing countries like India and China, which require huge oil imports to sustain high economic growth, he said.

Mr. Chidambaram said he had offered to hold talks with producer nations on the issue in view of the gravity of the situation for developing countries.

He suggested the creation of an oil price band within which market forces could be allowed to operate. This would curb speculation andprovide a comfort level to the developing countries. Producers could suggest the upper band and consumers the lower band for the oil prices.

Mr. Chidambaram criticised developed countries for voicing concerns about environmental issues in developing countries. This was "unfair" as there was hardly any mention of such issues when industrialised nations were growing.

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