The Hindu Business Line : FICCI survey calls for de-risking oil needs to mitigate price rise impact

A STUDY by the Federation of Indian Chambers of Commerce and Industry (FICCI) on `Emerging oil price scenario and Indian industry' has noted that de-risking the country's oil needs and promoting alternative sources of energy are important for cushioning India against future oil price shocks.

The survey was conducted during October-November when oil prices were skyrocketing towards the $50 per barrel mark leading to higher inflation and increase in production costs, and thereby eroding margins decline in profits.

According to the survey, the Indian industry was of the view that the Government should take possible steps to de-risk the country's oil needs, promote alternative sources of energy and geographically diversify sources of oil imports.

Of the 147 companies, which responded to the survey, a substantial 77 per cent of the respondents said that their cost of production had gone up due to the rise in oil prices.

Further, of these 77 per cent companies, 63 per cent said that their cost of production had gone up by five to 20 per cent following the oil price hike. However, despite an increase in the cost of production, a majority (60 per cent) of the respondents reported that they were fully absorbing this incremental cost internally.

This situation of internal absorption may not continue for long if oil prices continue to remain high, the survey said, adding that 79 per cent of the companies that have not resorted to a price increase may be forced to do so in the next three to six months if the present situation continues.

Suggesting measures to cushion against future oil prices, the respondents said: "Prescriptions suggested can be better introduced now when the prices have somewhat retraced."

Energy conservation and promoting efficiency in use of petroleum products and developing alternative sources of energy that would entail lower oil sensitivity for the economy as a whole were some of the measures suggested. Apart from this, having a floating tariff regime for oil products, building of strategic reserves, and developing a buyers' consortium with other Asian nations to collectively bargain with oil exporting countries of Middle East and also OPEC were also some of the measures suggested.

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