We have been hearing a lot about a possible oil crisis in the country.The Petroleum Minister is said to have approached the Iranian government for oil. Is India actually seeing an oil crisis?
In a way, we are already in a crisis. Look at the current account deficit (CAD). It’s in a very bad shape. Oil is the biggest player (or villain) in the whole game. Look at our hard currency, for instance. We have burnt roughly 52 % of our total annual hard currency earnings just to import oil. You can understand the impact oil in general has on current account deficits especially in the current situation. I personally feel the oil situation is very grave and therefore, the economic situation is very grave. For instance, our hard currency reserves are roughly $ 275 billion and we need around $ 167 billion annually just to import oil. In 3-4 months, we may be in a situation where we may not have sufficient money to pay for oil imports in dollars since all business takes place in dollars. Therefore, the government is basically trying to diversify the sources of crude imports and has been knocking at the doors of Iran. This is a funny and ironical situation. Just 12 months ago, Iran was asking us to buy more oil from them. We kept saying ‘no’ and systematically tried to cut down our oil imports from Iran in order to please western countries, especially the United States. Now that we are short of dollars and want oil from where we can pay in rupees, we have turned to Tehran.
Did you see this crisis coming? Were there sufficient warnings that something like this was going to happen?
Well, I had already seen this situation coming 8 months ago. In fact, I said on record on many TV channels and other media platforms: “Look, be careful. We may soon be in a situation where our companies might not have sufficient dollars to pay for oil imports and foreign countries may refuse to sell oil to India.” Today the situation of our big oil companies, such as Indian Oil which has an annual turnover of 86 billions, is such that they are not able to source or borrow money internationally because financiers are refusing to lend money to them given the very bad financial situation of these companies and the same is the case with some large exporting firms.
The only source they can bank upon is the Indian government’s bank. When it comes to imports, you still have to pay. You can mobilise rupees in respect to your current financial situation, but you can’t mobilise dollars and that is the challenge in front of the country today.
We are in a very serious situation and the government has very little time: 30-45 days. The government must act fast, try to deregulate diesel on paper, make its price partially controlled and incentivise domestic oil production.
Has the crisis something to do with the way oil companies are structured and the need for more deregulation?
To be honest, it has more to do with the the current account deficit because FDI (Foreign Direct Investment)inflow has slowed down and so has FII (Foreign Institutional Investment). My worry was mainly the current account deficit. Our Finance Minster Mr. Chidambaram was practically going all over the world – from Tokyo to Washington DC to Singapore to London trying to attract FDI. I saw a bit of panic in those moves of the government. Also, Foreign Institutional investors have been losing confidence in India.
But yes, the oil companies are very large, crucial to India’s economic future, crucial to India economy and political stability and still these companies are so tightly controlled by the government that they don’t have space to breathe freely. The government is not really the best agency to run the oil business. It should have ideally left it to these companies to professionally manage themselves. At the same time, it should have tried to bring in the best talent available in India and the world to run these companies. It should have given them the autonomy, incentives and tax benefits and let their managers run them. The government didn’t do any of these things. It’s a very difficult business to control these companies because they are so large.
Just to put things in perspective, look at Indian Oil whose annual turnover is $ 86 billion, which is probably more than the annual GDP of Uttar Pradesh. Look at Hindustan Petroleum, for instance, whose annual turnover is $55 billion, which is more than the annual GDP of Punjab, Haryana, Gujarat and Himachal Pradesh put together. The Government has so tightly controlled these companies, which I personally feel has been a mistake and today, we are paying for that.
What do you make of Oil Minister Veerappa Moily’s audacious recommendations such as closing petrol pumps from 8pm to 8am?
The government has basically panicked. You issue such kind of farman (order) only when you are in a panic mode. An 8pm to 8am curfew is a message to the country that the situation is so grave that it has gone out of control. Why are they creating this panic? When you issue such statements, you create panic and instantly generate a black market. 70% of petrol pumps across the country are owned or benami owned by MPs, politicians, thugs and gundas.
They will create a parallel black market almost overnight. If you do the Night Curfew, what will happen is that at 8 am in the morning, there will be long long queues in front of petrol pumps because that’s the time when people go to work. This idea is absolutely ill- advised and cannot work in India. The government refrain from such ideas and proposals.