By Jaideep MishraThe sharp fall in oil prices in the global market is enough to make reforming the long-stalled oil sector an imperative. Within a few years, India will become the third largest consumer of crude oil, much of which will be imported at world prices. Therefore, there is a need for targeted reforms in the policy and pricing of petroleum products to improve efficiency, productivity and excessive costs. This is the rapid growth of the petroleum economy.

Overseas, in mature retail oil markets, about half of all purchases come from “independent” retailers. These retailers are not involved in upstream production or refining, but still need efficient logistics and high quality delivery to compete with their customers. Effectively restricting oil sales here and in the wider market would have significant national costs.

Moreover, as crude oil prices fall further, expert analysts are optimistic that the bearish trend will continue for a year or more. The way forward for the government is to quickly loosen its grip on retail diesel prices. Petroleum products can better define their future scarcity value.

In the context of weak prices, the policy change is also politically important. Timely rationalization of the huge consumer subsidies for refined oil products, the abolition of distorted taxes on refined oil products, and the promotion of reform and opening up of the marketing of refined oil products. At the same time, it is important to systematically and innovatively reform the subsidy system for cooking gas and household kerosene through direct benefit transfers. The popularity of lighting equipment such as solar energy is both environmentally friendly and cheap.

In fact, over the past 10 years, crude oil prices have soared, but the price of domestic refined oil products has not been adjusted, resulting in a sharp decline in prices.-The recovery of petroleum products, additional loans and large consumer subsidies have hit the economy hard. Therefore, appropriate price signals are needed to prevent the demand for motor fuel from spiraling out of control.

Meanwhile, the downward trend in global crude oil prices is closely linked to a favorable supply and demand situation, weak demand and relatively active supply. The oil cartel OPEC has recently cut its production. However, this move was offset by an increase in production from non-OPEC countries, which account for the bulk of global crude oil production.

Meanwhile, the United States remains the largest consumer of oil, producing more than 19,000 million barrels per day (bpd). China ranks second, producing about 10.5 million bpd. India’s consumption is expected to increase to more than 4 million bpd in one to two years. The International Energy Agency (IEA) expects global oil consumption to be 93.5 million barrels per day (bpd) in 2014, but it is expected to remain at 93.8 million bpd next year due to low consumption and demand.

Oil policy reforms changes in the price of products such as diesel to market-determined prices have brought fiscal changes, often improving the allocation of resources for investment and subsidizing public consumption of petroleum products, much of which is paid for by the budget. After all, these are occupied by an endless number of people.

In the 1990s, Vijay Kelkar, then Managing Director of the Ministry of Petroleum, led a panel of experts that estimated that the proposed reforms in the petroleum sector would result in cumulative benefits of up to Rs 1 billion. Today, taking into account current costs, savings from pricing reforms and subsequent policy changes could mean a reduction in budgetary subsidies of around Rs. 10% billion per annum. Clearly, there were many things that money could not buy 20 years ago.

The problem is that the failure of populism in terms of subsidies, free gifts and domestic price adjustments for petroleum products has manifested itself in a weak economic recovery. Public sector oil marketing companies. This in turn has led to unplanned loans, absorbing liquidity and generally increasing the cost of capital for everyone. The diesel recovery gap has disappeared, especially after months of gradual price adjustments.

The previous government relaxed petrol price controls and bulk sale of diesel. The Modi government must now tighten and loosen controls on retail diesel prices. Petroleum subsidy must not leave a big gap in the treasury.