The Hindu : Business : Rising crude prices to spur inflation, affect growth

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Tuesday, Apr 19, 2011
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Rising crude prices to spur inflation, affect growth

Special Correspondent

NEW DELHI: India on Monday voiced serious concern over the rising crude oil prices, which have touched a two-year high, and said it could badly affect global economic growth and even give rise to inflationary pressures.

“The current oil prices will spur global inflation and retard economic growth. India feels that this is the concern that needs to be addressed on priority,” Minister of State for Petroleum and Natural Gas R. P. N. Singh said at the fourth Asian Energy Ministerial Round Table in Kuwait.

Mr. Singh said the current rise in international oil prices was a cause for worry not only for emerging economy like India but also for the entire world as the recovery from recession is still fragile. Crude oil is currently ruling at around $108 a barrel, necessitating either a sharp increase in domestic fuel prices or a hefty subsidy payout by the government.

At the current level, state-owned oil firms are projected to lose a huge Rs.177,500 crore on selling fuel if retail prices are not hiked.

Mr. Singh said inefficient fossil fuel subsidies that encourage wasteful consumptions need to be phased out over the medium term, while ensuring targeted delivery of the subsidy to the really needy, so as to provide them access to energy at affordable prices. On the reasons for the surge in oil prices, he said speculation in commodity markets, unregulated over-the-counter (OTC) transactions and trading in paper barrels are to be blamed.

“Given the dual role that crude oil now plays both as a physical commodity and a financial asset, we need to improve our understanding of the inter-linkages between the physical and financial markets, if we are to address the issues of price volatility and price discovery in the oil markets,” he said.

He said when oil prices had hit a record of $147 a barrel in July 2008, India had demanded regulatory mechanisms to prevent the influence of speculators on the price formation of oil. The Minister said for oil prices to be stable and predictable, both oil producers and consumers need to recognise their inter-dependence. “For encouraging investment by the oil producing countries, the oil consuming countries need to be in dialogue with the producing countries so as to assure the producers of a stable demand in times to come,” he said.

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