Oil subsidies in India will backfire : G7
Sudhir Chadda
Sep. 26, 2005

India, China and many other nations have created artificial low prices for petroleum products in their own countries. That has violated demand and supply driven open market price mechanism. The process has created a scenario where instead of energy conservation, more unnecessary use is encouraged. Very lately, the Indian politicians have realized what they have done.

G7 finance ministers and central bank governors have warned against efforts by governments to shield consumers from the price of higher energy costs, saying that price caps and subsidies on fuel could end up backfiring.

A range of Asian nations, including China, India, Indonesia and Malaysia, have been using subsidies to cushion the effects of the soaring oil prices on their citizens and businesses. In the final communique to their meeting in Washington, the G7 economic leaders said that such measures would have “an adverse effect on the global market and should be avoided.“

Policy makers meeting over the weekend reiterated concern expressed at last year's meeting that higher energy prices posed a risk to global growth. The IMFC - the committee of ministers guiding the International Monetary Fund, said: “Oil producers, oil consumers and oil companies will have a part to play in working together to promote greater stability in oil markets.“ They called on oil-producing countries to step up production and said more investment was needed in exploration, production and refining.

The G7 economic leaders also called for a new focus on conservation and the development of renewable energy sources. G7 policy makers have expressed concern about the high price of oil but have failed to stem the relentless surge of oil. Prices have been pushed higher by a combination of rising demand from China and the US coupled with heightened worries over supply following the damage to the US energy infrastructure during the hurricane season.

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