The Hindu Business Line : `Oil prices still driven by speculation'

INDIA STORY: The Finance Minister, Mr P. Chidambaram; flanked by the CII President, Mr R. Seshasayee; and the Founder and Executive Chairman, World Economic Forum, Mr. Klaus Schwab; at the India Economic Summit in the Capital on Sunday. - Ramesh Sharma

New Delhi , Nov. 26

The Finance Minister, Mr P. Chidambaram, on Sunday said that global oil prices were still being driven by speculation and that the world must come to some kind of understanding between oil producing and oil consuming countries to moderate the shocks of oil price increases.

"Oil is an exogenous shock and not in our hands. We are at risk here. We were told some time ago that it is a demand-supply issue. There has been no change in demand and little change in supply, but the oil prices have fallen from $75 to $58. I continue to believe that oil prices are being driven by speculation," Mr Chidambaram told the India Economic Summit 2006, organised by the World Economic Forum (WEF) and the Confederation of Indian Industry (CII), here today.

Mr Chidambaram, who was addressing the plenary session on `India in world at risk', said that the risk of oil peaks could be met if India gets access to nuclear material such as uranium and technologies in wind and achieves breakthrough in solar technology.

The Finance Minister said that oil-consuming countries such as India were ready to assure and offer a minimum floor price of say $40 per barrel if the oil producers were ready to assure a maximum price level of say $50 per barrel. "Within this band of $40-50 per barrel, the market forces could operate," he suggested.

Mr Chidambaram said that oil-producing countries were exploiting consumers and that India was robbed of a 1 percentage point in its gross domestic product (GDP) growth by high global oil prices. "We could have easily achieved 9 to 10 per cent GDP growth levels, but for the high global oil prices," he said.

The Finance Minister pointed out that the high global oil prices have led to issuance of oil bonds by the Indian Government, which makes the next generation pay for the consumption of the present. "This (oil producing countries exploiting consumers) is great injustice towards developing countries and the world is talking of millennium development goals," Mr Chidambaram said.

On the issue of globalisation versus protectionism, the Finance Minister said that the danger of protectionism was there. He highlighted that plural countries that allow people to migrate to their countries were less protectionistic. He said that the danger of protectionism would be there in respect of non-plural societies that have aged population and are conservative to migration.

Water challenge

The Finance Minister said that water was the greatest challenge for the country. "We must use the 7,000-km coastline for desalination of water for drinking water purpose. We should look at recycling of wastewater. There is a need to switch to modern irrigation practices such as drip and sprinklers. The precipitation over India is large enough to care of our needs," he said.