The approval by the finance ministry of budgetary support of Rs 4,948 crore for bolstering India’s strategic reserves of crude oil signals the launch of an important initiative. The 5.03 million tonne capacity, which the India Strategic Reserve, a special purpose vehicle, will build in rock caverns across three locations in the country, will supplement the cover of 65 days at various refineries to meet crude oil requirements in the event of supply disruptions. The decision to provide support for building strategic storage reserves for 90 to 100 days is to be welcomed, coming as it does when global oil prices have plummeted.
The slide in global oil prices has meant a lower import bill and savings of over $60 billion, with spin-offs for the economy, which should be reflected in higher growth numbers next fiscal. Windfall gains thanks to lower oil prices offer the government a wonderful opportunity to further build capacity for strategic crude oil reserves and enhance its energy security. India doesn’t have to look too far. China, which like India is a huge importer of oil, is way ahead when it comes to securing its interests on this count. Over the last few years, Beijing has diversified its supply base of oil stretching from Central Asia, including Turkmenistan, to Russia and further Venezuela. Thanks to its economic heft, China has been quick to sign long-term bilateral and other deals with large oil-producing countries such as Venezuela and Russia at a time when both these countries have been weighed down because of lower oil prices. The US, of course, does not have any such worries, having learnt from the first major oil crisis of the 1970s — going on subsequently to build the world’s largest energy oil stockpile of over 700 million barrels of crude oil.
For India, which imports three-fourths of its oil requirements, the stakes are high. Supply disruptions in the past, especially in the Middle East, have had a severe impact on the economy. The Narendra Modi government has been singularly lucky with savings on subsidy and extra revenue of close to Rs 1,50,000 crore, because of the slide in oil prices. On its part, India’s central bank has started building its forex reserves to cushion itself against global risks which may arise. That’s why it is important to ensure that the government does not fritter away the gains now. Apart from building strategic crude oil reserves, the government should review the perverse subsidy sharing burden imposed on state-owned oil exploration companies and pricing of crude produced by them.