The Economics Times | Economy firing on all cylinders; energy and growth are intrinsically integrated: Hardeep Singh Puri

Dec 30,2022

"I think the point is during the pandemic and thereafter we were still looking at a challenging situation on the virus front. I think we should thank the farsightedness and maturity of the Prime Minister’s policies," says Hardeep Singh Puri, Petroleum Minister.

Today we are breathing a sigh of relief as oil is below $90 per barrel. But did you get sleepless nights when rupee was weak and Brent had touch $136-$138?

I think I have seen situations where we found ourselves wittingly or unwittingly caught up in civil wars and all kinds of other challenges presiding over the Security Council. So the direct coefficient between sleep and the oil price may not be a very good line of enquiry. What I can tell you very candidly is that any line minister holding the portfolio that I do, will say that when the
price of oil shifts from $19.56 cents a barrel in March of 2020 to $138 a barrel then there is all along a challenge.

I liked your use of words about twists and turns but I think in all these challenges you have to navigate at a cost.
There are some things that do not change, the fact that you consume $5 million barrels of crude oil a day is not going to change. The fact that you have 77000 pumps in the country and the fact that what 60 million people go to the petrol bunk every day to fill up their two wheelers, three wheelers and cars that is not going to change.

Now if you are a democratically elected government and you are responsive to your consumers on issues such as energy availability, energy security, security then availability and affordability you have to somehow manage that energy. Let me say for mostly petrol and diesel at the bunk is going to be available at prices which insulates your consumer from the wild fluctuation and the wild rises that is $138 a barrel.

I think the first piece of good news I can give you which is reflected in your statement you used a word, "heave a sigh of relief". I am a little more modest in that, I think the point is during the pandemic and thereafter we were still looking at a challenging situation on the virus front. I think we should thank the farsightedness and maturity of the Prime Minister’s policies.

On two occasions in November 2021 and May 2022 the honourable Prime Minister decided that he was going to reduce the excise duty that the central government charges that had a helpful effect. He also appealed to governments which are not BJP governments to do likewise with great difficulty one or two came on boards, others refused to let go of this source of revenue. Now typically the price of oil at the point of production adds to that cost of insurance, freight, refining margin, exchange rate, so excise duty if you reduce you cushion it a little, the states charge a percentage VAT on it.

If the state governments had followed likewise it would have been an easier situation. Now you have a differential of something like Rs 10 between one state and another. I have never missed an opportunity to appeal to them in the interest of our economic development, in the interest of ensuring that the consumer is not unduly burdened. Where I say that we have been reasonably successful is that today there is widespread acknowledgement.

Are we better placed today than we were earlier I think it is relative judgmental thing. We have survived, we have managed to insulate our economy now with the economy firing on all cylinders and energy and growth are intrinsically integrated.
If you are growing as an economy your energy consumption is going to go up. In India’s case there is an additional factor because we are a large economy by global standards. We are the fifth largest, we are a $3 trillion plus economy going on to $5 trillion but our rate of growth has to be looked at in terms of our per capita consumption. Our per capita consumption, per capita GDP is still low so if the global rate is 1% growth we are growing at 3% but more than that you are looking at a scenario let us say 20 years from now where 25% of the global demand will come from India. So you are looking at the present, you are looking at a transition in terms of green energy and you are looking at not a prospect but a certainty that by 2047 you will be an advanced economy, your per capita consumption would have gone up from 5 million barrels a day to 6- 6.5-7.

Your transition, your bio fuel mixing will go up sharply, your use of compressed bio gas will go up, you are already making second generation bio fuels from pranali or agricultural waste so the country is going through a fascinating transition. But as I say in all transitions the challenges have not resulted in our commitment and dedication to green sustainable energy being diluted even one bit.

Allow me to take the conversation in two parts – first,the factthat we cushioned the Indian consumer in a rising energy scenario that was need ofthe hour, inflation was very high but atthe same time large part of heavy lifting was done by OMCs. Oil prices in India to the spirit were completely deregularised, oil companies were in a good state and now suddenly oil companies are losing money. Now that oil prices have come down willthey be allowed to increase prices?

First of all I am not easily persuaded to categorise and to use terms like administered pricing, regulation, etc, and now I have spent a few months in this ministry, I am what one-and-a-half years in this ministry, I can tell you that a more worthwhile and a more productive line of enquiry would be to start by saying OMCs are also good corporate citizens. If you are a good corporate citizen, you realise that your bread and butter cutting across the different areas is ultimately determined by the Indian consumer. So if you insulate the consumer and you provide a certain cushion
of affordability you are the gainer in the long run. And I think there is a certain sense of maturity which if displayed shows that government and the others rally around. I mean when gas prices shot through the roof, it was evident to everybody that the oil companies had taken a bit hit so they asked for compensation. I think their demand for compensation if my memory serves
me right was Rs 28,000 crores and then the finance ministry and all of us sat down and I said they have a point so gave them Rs 22,000 crores.

Hard truth which I can tell you is that when oil prices went up very high there was what is called under recovery. Now if you get into a discussion with me we may end up confusing each other whether how do you define under recovery,

Fact of the matter is they were losing money selling oil at that rate. We have 77,000 pumps in the country, 22,000 of them are in the private sector and the facts are that the OMCs were selling petrol and diesel at a much lower rate than the private sector guys were selling. I am not criticising the private sector but the private sector felt that they could not or would not, again they do not ask me but I can tell you what happened that did not deter the OMCs but I am told that the share of the private sector retailers came down substantially.

Now will the OMCs start selling at a higher price that I would like to again look at. There were clearly under recovery in petrol and diesel for a long time. The petrol situation improved. There was under recovery in the diesel for a long time. I should like to think now that the situation has arrived that both on petrol and diesel with the global prices stabilising and coming within a band that they are not losing any more now which means that some stage they will come to us saying, "Hamare 6 mahine mein itna nuksan ho gaya kuch aap kariye." etc. But it is done in a healthy environment where the country’s economic growth is something that they factor in because they are also very clear, if the economy grows as it is growing, even your most conservative estimates
whether they are coming from the international monetary front also saying you are going to grow at nearly 7% or so.

So I think they have behaved in a matured manner as good corporate entities and in the coming months they will exercise judgement and we on our part will also be able to device ecosystems and divide an environment in which everybody is a gainer. You have to keep on balancing this whole inflationary bump up which happened because of high energy price and the importance of OMC and the financial viability ofthe OMCs.

100%, why talk of our OMCs, can I share with you a comment I made to one of the leaders in this industry whom I met a few months ago and I said to this gentleman, who is a very respected person, I said look, energy whether it is crude or anything else this is a national sovereign asset. You are a sovereign entity, you can decide a) whether you want to sell it or you want to preserve it when the market is higher you decide. But let me tell you during the pandemic as in all countries put stimulus packages into their economy, in one particular case a very large economy the stimulus package was 20 trillion dollars. I said look you have got this stimulus already chasing the same set of goods and services, you are already in an inflationary situation, if the inflationary
situation is further exacerbated by high oil prices then you are no longer in an inflationary situation then you are in the big R.

I am not made that way, I do not say I told you so that but what is the situation today, the largest economies; the United States they are facing challenges but it is a very healthy economy otherwise, their labour markets etc, there is resilience but technically quarter-on-quarter there was a negative growth. But it looks like a bright spot now, they will come out of it. The second
largest economy is a 12 trillion dollar economy China I am not going to get into a discussion what is happening there because I suspect none of us know,exactly what is happening or the full extent of it.

India is doing well but the point is India is part of the global economy, we will have to face the same challenges. So I think a good starting point would be no matter what you say for domestic consumption it would be useful to acknowledge that high oil prices will further exacerbate the current situation and drive the global economy into the big R. And once that happens, again, it
is a self fulfilling prophecy, you have inflation, you have high oil prices, you go into recession, the demand drops so you are back to square one.

So are we not better off to calibrate the extent of energy or the extent of crude that you produce and release into the market because if you talk to OPEC president they say we do not control prices to which undergraduate student of the situation like me says if you do not control price but you control the amount of crude you let loose. If three countries in the world you have got
some form of restrictions; Venezuela, Iran and you have got this price cap issue with the Russians, I think with the situation you have to be very careful and how you navigate through this.

But on oil diplomacy Ithink it has been a victory for us, justto putit on record how much ofthe oil in India is now coming from Russia and do you see that number increasing in 2023?

First of all you do not determine how much you are going to buy from x or y. The purchasing is done by the private sector and the OMCs according to price. They have got term arrangements, they have got spot etc. I started by telling you we consume about 5 million barrels a day, for a long time prior to 31st March 2022 our largest suppliers were and in many ways continue to be, UAE, Saudi Arabia, Iraq, Kuwait, maybe somebody else roughly at the level of 800000-900000 barrels a day. Russia ended up the previous fiscal year ending 31st March with 0.2%. Russia last month was the largest supplier in between Iraq overtook them. Our oil companies or for that matter any entity in the world will buy from wherever they are getting at the cheapest rate. So in
other words what you call success I do not share that. I think we have maybe I should not say this but I will, I think we have reached a point of maturity where we play the market card because we are one of the defined consumers and if we have to buy five million barrels a day obviously we will buy from someone who is giving it to us on better terms.

I willtake leaffrom your earlier answer which is that we need to secure our future energy needs, ifIlook at what China has done they have entered into long term agreements with Qatar and other oil producing nations for long term contracts, is ittime thatIndia should take this. We are doing that all the time. I think we still have about six, eight years to go for our gas arrangement, the deal with Qatar. Long term agreements have their pluses and minuses also, if you do long term agreements and the prices come crashing down then it depends on what you have negotiated, if you have negotiated prevailing price is one thing but offtake etc so these are volatile things.