Globalization and Indian Petroleum Industry

Topics: Petroleum, OPEC, Peak oil Pages: 23 (8078 words) Published: September 12, 2011

The development of the Indian petroleum industry began on a very slow note. It started mainly in the northeastern part of India especially in the place called Digboi in the state of Assam. Until the 1970’s, the production of petroleum and the exploration of new locations for extraction of petroleum were mainly restricted to the northeastern state in India.  

However, an important advancement in the Indian petroleum industry came with the passing of Industrial Policy Resolution in 1956, which emphasized focus on the growth and promotion of industries in India. Another major incident was the discovery of Bombay High, which changed the scenario of the Indian petroleum industry drastically. The Indian petroleum industry was sponsored completely by the government, and the management control of the petroleum industry and all its related activity was entirely with the government. The petroleum industry has the most significant role to play in changing the Indian economy from an agrarian economy to an industrial economy.  

The adoption of liberalization and privatization in July 1991 changed the situation again. The government started allowing the Indian petroleum industry to go into private hands and also entered into government and private joint ventures. The government also eased the stringent regulation process on the petroleum industry. This gave a tremendous boost to the petroleum industry in India. The industry began to grow at a tremendous pace. The production of petroleum and petroleum products also showed a significant rise.  

Along with liberalization and privatization, the overall economy of India grew. Also, the demand for petroleum products increased at an annual rate of about 5.5%. The demand for petroleum and petroleum products still continues to grow, and there is great potential for investors to invest in the sector and gain valuable returns while meeting the increasing demands for the petroleum products. Amount of petroleum used for generation of energy grew from 51.27 million tonne during 1990-91 to 128.8 million tonne during 2005-2006. Indian Petroleum Industry grew at a tremendous pace between the period 2000 and 2006. During the mentioned period, the production of petroleum products increased from 95.61 million tonne during 2000-2001 to 119.75 million tonne during 2005-2006.  

The petroleum industry in India is particularly favorable for foreign investment because the industry is one of the fastest growing segments, and it has shown a staggering growth rate of around 13% in the recent past. Apart from the tremendous growth rate in the Indian petroleum industry today, it also boasts technology of international standards, easy availability of infrastructure at very cheap rates, high demands for petroleum products, and increased spending habits of the middle-class people. All these factors make investments in the Indian petroleum industry an attractive proposition for foreign investors.  

Globalization and the Indian Petroleum Industry
To overcome the severe balance of payment crisis of 1991, the government of India took resort to the International Monetary Fund (IMF) and the World Bank prescriptions to bail out its ailing economy. The liberalisation process which had been started earlier (at least in hydrocarbon sector) was accelerated and extended to other sectors of the economy in the name of structural adjustment process (SAP). The main features of SAP were i) privatisation and ii) opening up of economy to foreign companies. However, much before this exercise, the petroleum sector was opened to foreign companies. Though the declared policy of the government of the post independent India was to develop this vital industry under public sector, in actual practice, the industry from its inception was very much dependent on foreign technology, capital and even on expert personnel. Over the years, the foreign involvement in different critical stages like exploration, production, transportation and...

References: 
 Outlook Profit Supplementary September 2008 Edition, which is published on OIL & GAS Reckoner
 OPEC Annual Reports
 Organization of the Petroleum Exporting Countries Monthly Oil Market Report, July 2008
 Craig H. Petersen, W. Cris Lewis, Sudhir K. Jain (2008), "Managerial Economics", Fourth Edition, Pearson Education, Inc.
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