Liberalisation of Indian Economy & Its Impact On Indian Oil & Gas Sector.

For four decades following

Independence , the Indian economy was

under a socialist, dirigiste leash.

The laws of demand and supply took a

backseat to the diktats of faceless 

bureaucrats.

Unsurprisingly, the economy could only crawl along, plagued by high

rates of inflation, unemployment and

inefficiency - the consistently meagre rates of growth produced by it

coming to be contemptuously termed

the "Hindu rate of growth" the world over.

The central pillar of the policy was import substitution, the belief that India needed to rely on internal markets for development, not international trade — a belief generated by a mixture of socialism

and the experience of colonial exploitation.

The problems steadily mounted and in 1991, the economy stood on the verge of collapse due to

an acute foreign exchange

shortage crisis.

In 1991, after the International

Monetary Fund (IMF) had bailed out the bankrupt state, the government of P.V.

Narasimha Rao and his finance

minister Manmohan Singh started

breakthrough reforms.

The new policies included opening for international trade

and investment, deregul

ation, initiation of privatisation, tax

reforms, and inflation-controlling

measures.

Energy Policy & Regulation

Various agencies within Indian government

oversee energy policy in India and include the

Ministry of Petroleum and Natural Gas, the Ministry of Coal, the

Ministry of Non-Conventional Energy Sources, the Ministry of Environment and

Forests, the Department of Atomic

Energy, and the Ministry of Power.

Under the Ministry of

Petroleum and Natural Gas are the Directorate

General of Hydrocarbons

(DGH) and the Oil Coordination Committee.

 The DGH was set up in 1993 to oversee

petroleum exploration programs, develop plans for the state-

owned oil enterprises and private

companies, and oversee efficient utilization of gas

fields. 

The Oil Coordination Committee oversees,

plans, regulates, and advises on the downstream

sector.

The Gas Authority of India Limited (GAIL) is responsible for transportation

and marketing of natural gas.

State-owned companies like the Oil and Natural Gas

Corporation (ONGC) and Oil India Limited (OIL),

which manage exploration and production activities,

and the Indian Oil Corporation (IOC), which secures oil from abroad,

also help shape the direction of energy policy.

Hydrocarbon Vision 2025

Lack of a comprehensiv

e energy policy is a barrier to foreign

investment in long-term

energy projects in

India.

To address the absence of a policy, the

government released in early 2000 Hydrocarbon Vision 2025,

a study whose recommendations

may become official policy.

The study suggests, among other things, that

India revise foreign ownership

regulations for refinery

operations to allow 100%

foreign ownership.

The study calls for elimination of government subsidies for petroleum over the

course of the next 3-5 years.

The government is being encouraged to allow domestic gas prices to float to 

international levels which would affect the 25% of the gas

market that is protected by

government price controls.

 Furthermore, the study set

down a goal to supply 90% of

India’s petroleum and diesel needs

from domestic sources.

India suffers from low drilling recovery rates.

Recovery rates in Indian fields average only about

30%, well below the world average. The

government hopes one of the benefits to

opening up the energy industry to foreign

companies will be access to better technology

which will help improve recovery rates.

Wary of a growing reliance on

imported oil, the government

announced the New Exploration Licensing Policy

(NELP) in 1997, which opened the

door to involvement by foreign energy

companies.

Foreign firms were initially hesitant to bid on oil exploration rights, and as a

result no bids were received from foreign energy companies in 1999. However, by early 2000 India had

awarded 25 oil exploration blocks. The largest contract went to Reliance 

Industries of India, which together with Niko Resources of Canada, won 12 oil 

exploration blocks.

Additionally, the government is

encouraging Indian energy companies to

get involved in exploration and

production projects in other Asian countries to make them more competitive in the international arena and develop their technical prowess.

 Indian companies have become active in other oil projects

in Asia, Sudan, Australia, and

Russia. In early 1999, IOC and ONGC

formed a strategic alliance designed to

improve the international

competitiveness of both firms.

Refining & Petrochemical

s

India is becoming a major global

market for petroleum products.

Consumption of petroleum

products rose from 57 million tons in 1991-

1992 to 107 million tons

in 2000.

The India Hydrocarbon 

Vision 2025 report

estimates future refinery demand

at 368 million tons by 2025.

For India to meet its

ambitious refinery

expansion goals it will need help

from multinationals

and private Indian

companies.

The main focus of a liberalization program that began in the mid-

nineties has been greater access to the

refinery sector for private companies and a

green light for joint ventures with state-run

enterprises.

One approach has been tax

breaks such as granting plants completed by

2003 a five-year tax holiday.

Regulatory reform has entered into the

picture, allowing foreign firms that invest in excess of

$400 million in refinery operations

to sell refined products.

Natural Gas

Natural gas now supplies about 7% of India's energy. Consumption of natural gas rose from 628 billion cubic feet (bcf) per year in 1995, to 752 bcf in 1999. Power

generation, fertilizers, and petrochemicals production are industries that have been

turning to natural gas as an energy feedstock. Natural gas will become a bigger

part of the energy picture for India, primarily as a way to reduce dependence

on foreign oil.

Today, the booming economy, declining unemployment and poverty rates, and all-round

increase in the nation's prosperity bear testimony to the wisdom of

that momentous decision.

But the most satisfying facet of this turnaround nevertheless

remains emotional - the stupendous rates of growth

currently displayed by the Indian economy being admiringly termed the "new Hindu rate of growth".

Presented By

Anupam Prashant Mujumdar

Aman Sud