ALLOCATION OF OIL RESOURCES FOR OPTIMUM GROWTH OF THE INDIAN ECONOMY : A SECTORAL ANALYSIS

Abstract

In recent years, no other non-renewable natural resource has invited such worldwide attention and interest as oil. It has not only been the harbinger of international cooperation and multi-dimensional economic development, but has also been and is the bone of contention between nations, resulting in unmitigated controversies and serious conflicts. The reason for this can largely be attributed to the peculiarity of the uneven geographical distribution of oil reserves and their rapid decimation on one hand and their ever increasing global demand on the other. These imbalances have put a great strain on the economy of oil importing developing countries like India. The Organization of Petroleum Exporting Countries (O.P.E.C.), announced a steep increase in the price of crude oil, first in 1973 and again in 1979 as a result of which the world entered an era of high energy costs. This is reflected in the oil import bill of India that has increased substantially after the first oil shock. Consequently there has been a pressure on the none too significant foreign exchange reserves of the country. The adverse impact of the international price increase could have been neutralised had the gap between the consumption of oil & oil products and the domestic production of crude oil been reduced, However, this has not happened. The consumption of petroleum ( iv) products has been increasing at a far greater pace than the supply of domestic crude oil. A need to identify the causes that have contributed towards the increase in the consumption of petroleum-products in the country, therefore, assume significance from the point of policy formulation. There is enough evidence which suggests that growth in the consumption of oil in various countries has been prompted by the need for achieving a higher economic growth. Many researchers have established a positive correlation between the consumption of energy/oil as a dependent variable and economic growth as an independent variable. However, to frame a comprehensive oil policy such simplistic approach may not be enough. This calls for a much deeper analysis of the factors influencing the consumption of oil. The other problem that India is confronted with is that of growing unemployment. The general improvement in the over all economic condition since independence has not ameliorated this problem; the magnitude of the problem has infact increased. Most of the five year plans have proved unequal to the challenge. The main objectives of the present study were to examine. the changes in the pattern of oil consumption and the causes of these changes. The final objective was to construct a linear programming model for maximising the total employment of (v) the country. To formulate a Linear Programming model for suggesting a scheme of allocation of petroleum products among the different sectors of the Indian economy for maximising the total employment. The pattern of consumption of petroleum products from 1953-54 to 1984-85 was studied in the four main sectors. The four sectors considered were the agriculture sector, the industrial sector, the transport sector and the household sector. For forging a quantitative relationahip between the consumption of petroleum-products and the factors influencing it regression analysis using the method of ordinary least square's method was adopted. The analysis was carried out at the sectoral 1evel. A scheme of allocation of petroleum products was achieved through linear programming (L.P.). The L.P model was solved using the simplex method, the computer program for which was run on the computer at the Department of Humanities and Social Sciences. The L.P model was integrated with the macro-economic model and the oil import model.The base year in all the three models was 1984-85 and the terminal year was 2004-05. The consumption of oil in the agriculture sector has increased with the successful advent of the Green Revolution ( vi ) which in turn has resulted in the increased application of tractors and diesel pumps. In the industrial sector it was found that price of fuel oil, the major petroleum-product consumed in industries, has not had an adverse effect on the consumption of petroleum-products. The stagnant coal production has not helped matters in bringing about a substitution of fuel oil by coal. The rise of oil consumption in the transport sector has been due to to the increasing number of motor vehicles, increasing use of diesel engines, and a rising road-rail ratio. The regression analysis revealed that the quantity of freight carried by road and number of passengers travelled by road are important variables in explaining the increase in the consumption of oil in the road transport sector. The price of kerosene has a negative effect on the consumption of petroleum-products in the household sector while the private consumption expenditure has a positive influence. The Linear Programming model revealed the importance of the agriculture sector in maximising employment. In the event of a major oil price hike the growth of output and employment would be considerably reduced. The pessimistic scenario indicated that a large amount of foreign exchange will have to be made available to finance the import of crude oil necessary to meet the demand in the event of any oil shock.