ISAS Briefs

The surge in oil prices from US$28 per barrel in 2003/04 to US$51 per barrel in April-June 2005 poses a challenge for Indian policy-makers. India's current account deteriorated from a surplus of US$10.5 billion to a deficit of US$6.5 billion over this period. The loss to oil companies amounted to Rupees 145 billion. According to one estimate, even if India did away with duties, attacked monopolistic practices of retailers, reduced the margins of producers, and put a ceiling on state-level levies, this would reduce the price of oil by about Rs3. India made the politically tough decision of raising the price of oil (by Rs3) and the price of diesel (by Rs2). The rise in Indian prices is much lower than international prices. The diesel price rise has a higher inflationary potential.