Voicing concern over crude oil prices ruling at two-and-a-half year high, India today said the spike in oil rates will spur global inflation and retard economic growth.
"Current oil prices will spur global inflation and retard economic growth. That is a concern that needs to be addressed on priority," Minister of State for Petroleum and Natural Gas RPN Singh said at the 4th Asian Energy Ministerial Round Table in Kuwait.
According to his speech, which was released to media here, Singh said: "the current rise in international oil prices is a cause for worry not just for emerging economies like India but for the world economy as a whole, whose recovery from recession is still fragile."
Crude oil is currently ruling at around $108 a barrel, necessitating either a sharp increase in domestic fuel prices or a hefty subsidy payout by the government.
At current level, state-owned oil firms are projected to lose a whopping Rs 177,500 crore on selling fuel if retail prices are not hiked.
The difference between retail price and their imported cost is a whopping Rs 18.11 per litre on diesel, Rs 28.33 a litre on kerosene and Rs 315.86 per 14.2-kg domestic LPG cylinder.
Besides, there is a Rs 4.50 a litre under pricing of petrol, whose rates have not moved in tandem with the imported cost despite its pricing being freed from the government control in June last year.
Singh did not say anything on changes in domestic rates but said "inefficient fossil fuels subsidies that encourage wasteful consumptions need to be phased out over the medium term, while ensuring targeted delivery of the subsidy to the really needy, so as to provide them access to energy at affordable prices."
On the reasons for the surge in oil prices, he said speculation in commodity markets, unregulated over-the-counter (OTC) transactions and trading in 'paper barrels' are to blamed.
"Given the dual role that crude oil now plays both as a physical commodity and a financial asset, we need to improve our understanding of the inter-linkages between the physical and financial markets, if we are to address the issues of price volatility and price discovery in the oil markets," he said.
He recalled that when oil prices had hit a record of $147 per barrel in July, 2008, India had demanding regulatory mechanisms to prevent the influence of speculators on the price formation of oil.
"We need to consider establishing position limits and moving OTC activity on to regulated exchanges," he said.