Petro Oil Case Study

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Pricing Petro Products in India: Fiscal (Taxes) & Welfare (Subsidies) – Equity, Efficiency & Revenue Considerations (May 2014)
Manish Baghla, PhD Student, TERI University
Economic effects of Oil prices in India
The importance of oil to the modern world is unique in character and far-reaching in scope. It is a singularly autonomous variable in the world economy and it is used inter alia for transportation, heating and production.
In India, Petroleum products are used in Agriculture, Sugar mills, Power generation, Mining & Quarrying, Transport (Road, Shipping, Railways), Manufacturing industries (Civil, Iron & Steel Metallurgic, Textile & Fibre, Cement, Ceramics & Glass, Chemicals, Aluminium, Electronics, Fertilizers, Other consumer & industrial goods). End-use of various petroleum products in India is listed in Table 1.
A sharply higher oil prices can set difficult economic challenges for oil importing economies as it can simultaneously slow economic growth while stoking inflation. In net oil-importing countries, high and volatile oil prices ripple through the numerous segments of the economy. As prices move up and down, so does the cost of production, which has far-reaching effects on the economy, fiscal and trade balances, businesses, and household living standards. As Petroleum Products consumption form significant part of economy, oil availability and prices thus affect the output capacity, rate of growth and level of inflation and hence oil price fluctuations can have important macroeconomic repercussions depending on the composition of oil sector in the economy.
High and volatile oil prices affect economies at both a macro and micro level. For an Oil import dependent economy, the major direct effects at the macro level ar...

... middle of paper ...

...years. And therefore, the government has to retrieve administrative means.
Another section of this Paper discusses previous oil pricing systems and steps implemented by Government of India for reforming Indian Petroleum sector market. Then the Indian Government & regulatory institutional layout with reference to current pricing of petroleum products to oil will be discussed.
In this Paper emphasis will be laid on the oil pricing systems since 1998 when India started reforming Indian Oil sector which coincided with sharp rise in global prices. In the conclusion, suggestions will be made for developing Indian oil market with future directions on policy on petroleum products pricing and taxation.
Macroeconomic impact of Oil prices in India
In an oil import economy, impact of rise in oil prices is eventually borne by households as explained below through the Table.

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