2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),
Volume 3, Issue 3, September- December (2012)
Moreover it is to be noted that the oil shocks occurring outside India have affected the economy
harshly causing balance of payments difficulties and as a result devaluing the rupee against the
US dollar.
Crude oil, especially petroleum is one of the most necessitated worldwide required commodity.
Oil is a key factor in each and every economy of the world. The need and demand for oil and its
by-products are increasing and every country in the world is ready to import oil to meet its
domestic requirement. This helps the oil exporting nations to earn a huge share of their foreign
income directly or indirectly. Oil shocks came to the world when in 1973 and in 1979 the oil
prices shot up. This shook even the strongest economies of the world. This happened on account
of the fact that the gulf countries refused to supply oil to the countries that were the supporters of
Israel in its war with Egypt and Syria. Crude oil alone bears 60% share to meet the global
energy needs in the current scenario. The reason for this high share in the primary energy
consumption in the world is due to the advantages that oil has over the other constituents of
primary energy such as diverse application, comparatively lesser harm to the environment, easy
handling, lower capital costs and above all higher efficiency.
Crude oil reserves on earth are estimated to be more than 1 trillion barrels that are mostly found
in the Middle East, Eastern Europe, Africa and Central America, Middle East being the top
reserve holder. It is a clear fact that oil is a limited resource and would finish off in a maximum
of 80 years if the current rate of consumption continues. Of these 1 trillion barrels, the world
produces around 75 million barrels per day. The largest crude oil producing country is Saudi
Arabia followed by Russia and United States of America.
Historically, the Indian petroleum industry was controlled by few Anglo-American companies.
They maintained their dominance till end of 1950s. After independence (1947), the newly
independent state wanted to play significant role in this vital industry. The industry policy
resolution of 1948 and 1956 have clearly documented the government's aspiration and future
plans for core industries like petroleum. All future development of petroleum industry was
reserved for public sector undertakings. But foreign assistance was a necessity at least in the
early stage. As collaboration with Anglo- American oil majors were ruled out, other alternatives
were explored.
At that time the government considered four options as under for the development of its
petroleum industry. Firstly, to seek assistance of a great power like Soviet Union. Secondly, to
collaborate with a small country like Rumania. Thirdly, to explore the possibility of a
government to government co-operation with other small but neutral countries like Austria which
had developed sufficient technical expertise in petroleum industry by that time and lastly, to try
and develop the industry through self-help by employing technicians and bringing necessary
machinery from which ever source available.
Of the above four alternatives, though co-operation with a small but neutral power like Austria
was thought the best option, the government went for the first alternative. Thus the Soviets took
charge of the nascent oil industry. However, their influence diminished over the years.
Subsequently, US companies and multilateral funding agencies like World Bank played
increasingly significant roles in this sector.
In the early seventies, the government of India nationalised the refinery and marketing facilities
of three foreign oil companies. Out of those three Burmah -Shell -, the British company
desperately tried to stay in India even as junior partner to a joint venture with a national oil
company . At that time Cochin and Madras refineries were running under joint venture between
the govt. of India and foreign oil companies. But the government did not accept Burmah-Shells'
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Volume 3, Issue 3, September- December (2012)
proposal. The other two American companies - namely Caltex and Standard Vaccum were
themselves eager to leave the country due to their internal organisational restructuring and
domestic compulsions. The government of Indias decision to nationalise them had nothing to do
with their departure from the marketing and refining sector. However, they kept their linkages
alive with the industry through crude supplies.
Apart from nationalisation of foreign companies, there were other important developments
during seventies and eighties which needs to be mentioned here to understand the liberalisation
process of this industry.
• i) As offshore exploration got more importance (though substantial areas of onshore
sedimentary basins were unexplored), involvement of US companies increased replacing
the Soviets. In offshore exploration and exploitation, India's dependence on American
and other Western companies were almost total.
• ii) In 1974, the government offered 7 million acres of Bay of Bengal to Natamas
Carlsburg Co. of USA for offshore exploration and production. A contract was entered
into between the US company and Oil and Natural Gas Commission (ONGC) for the
same. Subsequently another contract between Readings and Bates, USA and ONGC for
Kutch basin(Gujarat) was signed. It was agreed that initially the foreign company would
have 61% share in the joint venture and the price of the crude if produced would be based
on Indonesian and Persian Gulf crude. 40% of the total crude would go to the US
company as "Cost Oil" towards recovery of their expenses. 65% of the remaining crude
would be ONGCs share and rest 35% would go to the US company. However, the
venture was unsuccessful.
• iii) Since 1980, the government started to offer in a systematic way different sedimentary
basins to foreign oil companies for exploration and production. Better basins with liberal
terms were offered in successive rounds. For example, in the third round (1986) where
few major foreign companies participated, the government exempted them from paying
any royalty payment. Moreover, no minimum expenditure commitment were to be made
and ONGC/OIL was given the option to take minority stake (40%) in the joint venture, if
the fields were found viable. However, there was no breakthrough in exploration by the
foreign companies.
• iv) Till 1990, the government had invited four proposals for bidding. Due to political
changes finalization of contracts against the fourth round of bidding was deferred. One
noticeable feature of the fourth round was that, Indian private companies (along with
foreign partners) were allowed to participate for the first time. As no major field was
discovered by foreign companies, the government over exploited the existing fields. At a
time when the global crude price was declining, India’s crude production was increased
steeply from 10.51 MMTPA in 1980-81 to 34.00 MMTPA in 1989-90. The oil bearing
wells were 'flogged to death' and as a consequence, production fell to 26.92 MMTPA in
1992-93.
• v) In the eighties, the government allowed Indian private companies to enter into refining
sector initially as a joint venture partner with a public sector refining company. Later,
Reliance Industries Ltd.(RIL) was allowed to build on their own the largest refinery in
the country.
• vi) For refining technology, the public sector refineries, during 1980s, were almost
completely dependant on one American company M/s Universal Oil Products
(UOP).UOP did not transfer their technology to the refineries. They 'leased' it
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simultaneously to more than one Indian refineries at a time. Thus, the technology could
not be absorbed.
• viii) The marketing policy followed by the public sector companies has made the
economy and the society completely dependent on petroleum products. It has
successfully replaced/barred entry of other alternative energy sources including natural
gas.
METHODOLOGY
Significance of the problem:
It is believed that the balance of payments position of India is on the razor’s edge. This is on
account of India’s inflationary pressures, sustained increase in prices of petrol and allied
products which has led to current account deficit. Diversion of output of petroleum products to
overseas markets creates supply shortages in the domestic market. This has created an urgency to
find out where these conditions are heading and how long the same will continue. The sharp drop
in exports and higher oil prices are offsetting the improvement in the country’s trade
deficit. Hence this article attempts to find out the export of petroleum from India before and
after globalization.
Objective:
The objective of the present study is to find out the impact of globalization on India’s petroleum
products.
Period of study: The period of study is from 1950 to 2010. The data contains the export of
petroleum from the balance of payments compiled by the Reserve Bank of India. This time
period has been analysed in order to find out the export of petroleum before and after
globalization and hence to find out the impact.
Data Collection:
Data has been collected through secondary sources only. The major sources of data collection
are: www.rbi.org.in which is the website of Reserve Bank of India, India’s Central Bank,
Handbook of Statistics on Indian Economy, 2009-10, Sep 15, 2010, prepared by the Reserve
Bank of India.
Analysis:
Analysis of the data has been done using tables and charts.
Limitations of the study:
The data has been collected and analyzed on the basis of millions of US dollars. The inflation
rate of the two countries has been assumed to be constant and other factors such as exchange rate
and fluctuations in the economy due to various other foreign trade policies have not been
considered.
In order to find the impact of globalization on petroleum products the exports and imports of the
products have been considered before and after globalization.
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5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),
Volume 3, Issue 3, September- December (2012)
Table 1: Exports of Petroleum Products prior to globalization (US$ million)
Exports (in US$
YEAR million)
1970-71 16.6
1971-72 15.5
1972-73 41.9
1973-74 19.7
1974-75 42.1
1975-76 42.1
1976-77 36.7
1977-78 32.4
1978-79 24.1
1979-80 26.2
1980-81 35.2
1981-82 250.8
1982-83 1283.3
1983-84 1537.8
1984-85 1533.4
1985-86 535.3
1986-87 326.8
1987-88 500.4
1988-89 348.7
1989-90 418.4
1990-91 522.7
Source: DGCI&S, Calcutta
Table 1 shows that there was an infinitesimal amount of exports of petroleum products till 1980-
81. This was especially due to the fact that crude petroleum exports were nil in all the years
except in the year 1971-72 and 1972-73. The exports of crude petroleum in those years were
US$ 2.2 million and US$ 20.4 million respectively. The initiation of the exports of crude
petroleum started only in 1981-82with the peak amount of US$ 1,537.8 million. India’s energy
policy, till the end of the 1980s was mainly based on availability of indigenous resources.
Despite its size, India plays a relatively small role in the world economy. Until the 1980s, the
Indian government did not make exports a priority. In the 1950s and 1960s, Indian officials
believed that trade was biased against developing countries and that prospects for exports were
severely limited. Therefore, the government aimed at self-sufficiency in most products through
import substitution, with exports covering the cost of residual import requirements. Foreign trade
was subjected to strict government controls, which consisted of an all-inclusive system of foreign
exchange and direct controls over imports and exports. As a result, India’s share of world trade
shrank from 2.4 percent in financial year 1951 to 0.4 percent in financial year 1980. Largely
because of oil price increases in the 1970s, which contributed to balance of payments difficulties,
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6. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),
Volume 3, Issue 3, September- December (2012)
governments in the 1970s and1980s placed more emphasis on the promotion of exports. They
hoped exports would provide foreign exchange needed for the import of oil and high-technology
capital goods. Nevertheless, in the early 1990s India’s share of world trade stood at only 0.5
percent. In financial year 1992, imports accounted for 9.3 percent of GDP and exports for 7.7
percent of GDP.1
The export of petroleum products prior to globalization has been depicted in the following chart:
Figure 1:Export of Petroleum Products prior to
Globalization (US$ Million)
Export of Petroleum Products (US$ Million)
1800
1600
1400
1200
1000
800
600
400
200
0
YEAR
Exports of Petroleum Products after globalization (US$ million):
After the adoption of liberalization and privatization in July 1991 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. The mean value of exports of petroleum goods after
globalization was 5912.75 which is much higher than that prior to globalization. The exports of
petroleum products after globalization have been shown in the following table:
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7. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),
Volume 3, Issue 3, September- December (2012)
Table 2: Exports of Petroleum Products after globalization (US$ million)
Exports (in US$
Year million)
1991-92 414.7
1992-93 476.2
1993-94 397.8
1994-95 416.9
1995-96 453.7
1996-97 481.8
1997-98 352.8
1998-99 89.4
1999-00 38.9
2000-01 1869.7
2001-02 2119.1
2002-03 2576.5
2003-04 3568.4
2004-05 6989.3
2005-06 11639.6
2006-07 18634.6
2007-08 28363.1
2008-09 27547
Source: DGCI&S, Calcutta
Table 2 highlights the export of petroleum products after globalization and it was noted that the
same were also not very attractive. It declined to an amount of a meager US$ 38.9 million in
1999-2000 but then it astonishingly sparked up to US$ 1869.7 million in the very next year.
Since then there was a steady growth in the exports and in 2007-08 it reached an amount of US$
28363.1 million which was attractive compared to most of the other years. The growth in the
petroleum exports can be attributed to the increase in installed capacity of the refineries by 18
per cent from 112,040,000 tonnes in the FY 2000 to 132,468,000 tonnes in FY 2006. 2 Export of
petroleum products after globalization has been depicted in the following chart also:
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8. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),
Volume 3, Issue 3, September- December (2012)
Figure 2: Export of Petroleum Products after
Globalization (US$ Million)
30000
Export of Petroleum Products (US$ Million)
25000
20000
15000
10000
5000
0
YEAR
From the above it can be concluded that before globalization, the exports of these products were
infinitesimal till 1981-82. The reason was that India’s energy policy till the end of 1980s was
based on availability of indigenous resources. Government aimed at self sufficiency through
import substitution and exports covering the cost of residual import requirements. The oil price
increases in 1970s contributed to BOP difficulties. It was noted that in the early 1990s, India’s
share in the world trade stood at 0.5 percent In the financial year 1991-92 the imports were 9.3
percent of GDP and exports were 7.7 percent of GDP. After globalization the government eased
stringent regulation process on the petroleum industry and hence the industry grew at a
tremendous pace. There was a sparking increase in exports of petroleum in 2000-01 and
similarly in 2007-08 also there was an attractive increase. The reason can be attributed to an
increase in installed capacity of refineries from 112,040,000 tonnes in financial year 2000 to
132,468,000 tonnes in financial year 2006.
REFERENCES
1)
India trade 1995 LOC data, “ BUSINESS IN INDIA DOING BUSINESS IN INDIA - India
Trade”,
http://webcache.googleusercontent.com/search?q=cache:cKA0TG9qfeQJ:www.indianchild.com/
india_trade.htm+india%27s+export+of+petroleum+products+in+1980s&cd=7&hl=en&ct=clnk&
gl=in&source=www.google.co.in
2) http://www.igovernment.in:81/site/indian-petroleum-exports-to-surpass-imports-in-six-years
3) www.rbi.org
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