For more than a quarter-century, academics have discussed what has come to be called the curse of oil. The argument goes that countries and regions that are rich in natural resources usually do worse than others, when it comes to over-all development. One study showed that members of the Organisation of Petroleum Exporting Countries (Opec) saw their economies growing more slowly than other developing countries, over a quarter of a century. While some economists have questioned this thesis (which has been championed by Jeffrey Sachs, among others), India’s own experience would support the argument that abundant resources could be a development drag and not a booster. The most resource-rich states in the country (Jharkhand, Chhattisgarh, Orissa) are also among the poorest and the least developed, while less well-endowed states in the west and south have marched ahead.
At a time when India may be on the cusp of an energy turnaround because of the prospect of vast quantities of gas being pumped out of the Krishna-Godavari basin, it is already possible to see how the curse of abundant natural resources might work. Two brothers are at each other’s throats over the pricing of gas; a sector regulator alleges that he might be caught in the cross-hairs and physically targeted; the government sets up committee after committee that sit in endless meetings but the feud continues. Politics and policies both become victims—as has been the case with both iron ore and coal. The maximum lobbying and corruption today are probably over the allotment of iron ore and coal deposits—with one case alleging favouritism having reached the Supreme Court. Indeed, many of the Maoist grievances have to do with companies acquiring rights to exploit natural resources—because of the accompanying displacement of people and the disruption of their lives. And in Karnataka, the link between those mining iron ore and state politics driven by big money (one candidate is said to have spent Rs 100 crore on his election) has become notorious nationwide.
Abundant natural resources can prove counter-productive in many other ways. If their exploitation leads to large-scale exports, it can drive up the currency and thereby price out other exports, to the general detriment. Plentiful oil and gas would also encourage a host of soft options, to which all politicians are naturally prone. Thus, a plentiful supply of domestic hydrocarbons would protect the economy from successive oil shocks, but it would also encourage aberrant pricing decisions even more than is already the case—and make the economy get used to cheap oil and gas, which can be a dangerous situation to be in. The United States got used to cheap oil because much of it used to be domestically produced; the Europeans never had much oil or gas, so their energy pricing has always been more rational. More subtly, if governments make a lot of money out of oil and gas, budgets could be balanced without the kind of taxation that makes citizens feel that they have a right to certain services in return for the taxes they pay. If this link between taxes paid and government-delivered services is broken, there is less pressure on governments to perform.
It might be strange to trot out these arguments when India imports the overwhelming bulk of its oil, and will be an importer of gas for the foreseeable future. Also, no one would prefer an energy-deficient system susceptible to oil shocks, over a system that has energy security because of self-sufficiency. But when the negative facets of resource-driven politics and corruption are already apparent, it might be a good idea to think ahead, about how to avoid the curse of oil and all its associated dangers. Or is it already too late?
