IMPACT OF OIL INCREASING ON INDIAN ECONOMY । PARAGRAPH IMPACT OF OIL INCREASING ON INDIAN ECONOMY

 IMPACT OF OIL INCREASING ON INDIAN ECONOMY

Introduction :- The prices of oil have once again started going through the roof. In the past few years, the prices of oil have seen a steady downturn. This can be largely attributed to the supply gut that was created as a result of a new technology called “fracking.” The world has changed immensely since then. Geopolitical tensions have now created a supply shortage. As a result, the prices of oil are once again on the rise. 

The Trend of Hike in Oil Prices :- The fluctuation in the price of oil has occurred several times in the world. The countries like Iraq, Iran, Kuwait, Saudi Arabia, Venezuela have formed an organization in the year 1960 called as Organization of Petroleum Exporting Countries (OPEC). This organization controlled the global price of oil after its formation for a decade. The prices have increased many times in the world during times of war or recession. The system of fixing the standard price of oil had changed to fluctuating oil prices in the year 1987. Further, the high fluctuation in the price of oil has been observed from the year 1996. The price of oil did not reduce even when the production of oil was high. The reduction in the price was noticed during the Iraq war in 2003. This again was followed by the increase in the price from 2004 and this trend of increasing of the cost of oil is continued till date. There was a tremendous decrease in the demand for oil and its price during the year 2020. It was due to the lockdown in the entire nations of the world and the Russia- Saudi Arabia oil price war.

The Reasons Contributing to Hike in Oil Prices :- 

Increase in Global Demands for Oil :- The increase in demand for oil in different countries is the most important factor for increasing of price of oil globally. Rapid industrialization, urbanization, population explosion are the major for an increase in the demand for oil in different nations. Moreover, the demands have increased drastically in 2021 after improvement in the pandemic situation. This  in supply and demand equilibrium is resulting in oil price hikes.

Population Growth :- The increase in population results in increasing the demand for oil. It is because more people will be requiring more vehicles and that will require sufficient oil for transportation.

Wars and Disasters Leading to a Temporary Fluctuation in Oil Prices :- The occurrence of natural disasters or man-made disasters in the oil-producing nations result in fluctuation of the price of oil in the world. Wars and disasters are challenging conditions. It is because of the after-effects of such threats to the oil fields and refineries.

Reduced Production of Oil in Oil Exporting Nation :-  The reduction in the production of oil in the oil-producing and exporting nations is a serious concern. The oil-producing nations are interested in exporting crude oil at higher prices for getting benefitted.  The reduced quantity of oil is not sufficient to meet the demands of the different countries around the globe. As a result, the increase in the cost of oil is increased globally. This has a severe impact on the economies of developing nations like India.

Impact Of Oil Increasing On Indian Economy :- 

The demand for oil had drastically decreased during the year 2020 because of the pandemic situation in the world. The restriction imposed on traveling and the long closure of transportation in India had resulted in lowering the demand for fuel in the market. This lowered price of oil attained a hike at the onset of the year 2021 and is still following the trend of rising. The price of oil at present has reached 80$ per barrel in India. Most probably it may cross 85$ per barrel in the coming days.

The hike in the price of oil is having a negative impact on several factors like the stock market, currency, inflation, transportation and production sectors, and expenditure of the government. This may cause a severe impact on the economic condition of India. The stock market is also affected by the increase in oil prices.

This might either have a negative or positive impact on the economy and that depends upon the shares of the company. The demand for oil in India is high because of its high population and thus to fulfill this demand the nation has to import more than 70% of oil from other oil-producing nations. The nation will have to pay higher costs if the oil price is high. This will diminish the value of the Indian currency. Moreover, the increase in the expenditure of the government will result in a fiscal deficit.

The hike in oil prices will also result in an increase in the transportation and production charges of different goods in the nation. This will result in a high price of the different goods for the customers. The fare of the public transport is likely to increase as the result of the high oil prices. Thus, the rising trend of oil prices in India is causing an adverse effect on the economic condition of the nation.

Conclusion :-  The rise in oil prices is rising every day in India and the world. This rising trend in oil price is expected to be continued in the coming days. It will upset the economic condition of the nation as well as the people of the nation. Moreover, the high taxes on fuel in India are adding an excessive cost burden on the people. The day is not far when people will choose to use a bicycle instead of using a vehicle running by using fuel. The rise in fuel prices is also seems to be enhancing car pooling instead of using the personal vehicle for travelling. This shall be a better step towards protecting our environment.