Angshuman Sharma, Chandan Bora and Rupam Bhaduri
(All the three writers are research scholars – the former two in GU and the third one in IIT-Guwahati. They can be reached at Angshu2606@rediffmail.com)
The ongoing COVID-19 pandemic has inflicted drastic consequences on various sectors of the economy. Amongst the multitudinous effect of the viral outbreak, its impact on the global oil market is significant owing to the fact that a myriad of industries worldwide are dependent on it for their subsistence. There is an unprecedented decline in demand for oil in the backdrop of the worldwide lockdown imposed to arrest the corona growth curve. The shunning of economic activities in the virus hit countries backed by closure of manufacturing units, reduced transportation etc., have reduced the global industrial and consumer demand for oil substantially. Such contraction in global oil demand was further aggravated by the political tensions and resultant price war between two of the leading oil producers of the world - Saudi Arabia and Russia – which resulted in increasing supply of oil to an already oversaturated global oil market. The severe fall in demand for oil have resulted in filling up of strategic oil reserves around the world and with this situation likely to worsen in the coming months; shall exert further pressure on oil prices and bring about an existential threat to numerous oil producing and marketing companies operating worldwide. Oil vessels which shipped huge oil cargos globally lay stranded in ports and oil terminals across globe today. Such abnormal plunge in international oil prices, notably even worse than the global financial crisis of 2008, has shattered the oil economy, the after-effects of which might take years to settle. According to International Energy Agency, global oil demand in 2020 stands at (-)90kb/d (thousand barrels per day) and is likely to grow at an annual rate of 950kb/d throughout 2019-2025 which is a sharp reduction when compared to the annual average pace of 1.5mb/d(millions of barrels per day) in the last ten years.
With different countries adopting policy measures to contain the novel coronavirus, India has earned the distinguished identity of imposing one of the strictest lockdown in the world. Slew of measures such as border bans, travel restrictions and closure of educational institutions among others, have had a serious toll on its domestic economy which in turn reduced the demand for petroleum products. Despite being the third largest consumer of oil worldwide, demand for crude oil in India have slumped to 2.8 million barrels/day when compared to 4.8 million barrels/day in the same month of the previous year. Certain relaxations such as restarting of domestic flights and reopening of work places might just resurge the demand for gasoline and jet fuels in the country but, such shift in demand seems to be of minimal significance when considered from a broader perspective. With almost 75% of the transport sector frozen and many industrial units operating within limited capacity owing to their location in red zone areas, it will take several months for the state of the economy and the oil sector in particular to see signs of improvement. According to Petroleum Planning and Analysis cell, India's imports of petroleum products have tumbled by as much as 90.9% in comparison to the previous fiscal. On the retail front though, there seems to be a contradiction when one compares the slumping international oil prices with the price that retail consumers are paying in the Indian market. Such disparity between the wholesale and retail price of fuel can be attributed to certain taxes that the government had imposed to generate additional revenue and set off the losses incurred during the last few months due to nationwide lockdown. Taxes levied by the Centre such as excise duty, road cess and sales tax add up to the cost of wholesale fuel prices paid by the government the burden of which, has to be ultimately borne by the retail consumers. Value Added Tax (VAT) is another such tax which is levied on petroleum products by the respective state governments. Apart from the aforementioned taxes, other expenditure such as the dealer's commission and marketing costs are added and the overall tax component on petrol and diesel breaks down to as much as 70%, which is why the retail price of petrol and diesel in India, is reasonably higher compared to other countries. The slump in global oil prices, however, brings along a sigh of relief for the government. India imports more than 80% of its crude oil requirements from abroad and as such the government will now have to shell out a lesser amount than what it used to owing to the prevailing market condition. This in turn lowers the overall manufacturing and energy prices within the country and could help in moderating the inflation rate. Lower tax collection and the widening fiscal deficit during the last few days could be well set off by the additional revenue generated by the government by imposing domestic taxes which is estimated to be around Rs.1.6 lakh crore this fiscal.
At a time when global economy has become majorly dependent on oil, it is time for the nations worldwide to invest more in indigenous renewable sources of energy and explore their potentiality. Role of global bodies such as the International Solar Alliance for instance, could be noteworthy at this hour particularly when, solar energy has become the talk of future. Assam which receives solar radiation of 3-6 kWh/m2/day makes the state geographically suitable for the generation of solar energy. The hot and humid weather also favours the better functioning of Biogas chambers which convert the waste (household, cattle dung etc.) into energy and even manure. The partial dependency on renewable sources of energy will not only explore sustainability but also reduce emissions which are a mandate of the Paris Agreement (Conference of Parties 25). Contrariwise, a complete shift from oil to other sources of energy will not be possible considering the state-of-the-art technologies, and also because an entire section of socio-economic growth is dependent on it. It is also understood that during and post-pandemic, larger investments will be around health and sanitation which is also the need of the hour. However, if a gradual focus can be shifted towards the scientific and sustainable use of renewable sources of energy, it might prove to be a better approach for a self-sufficient economic system for the state as well the country in the days to come.