Warnings of the impact of rising oil prices on the poor in Asia and the Pacific region brought out in the recent UNDP report on ?Overcoming Vulnerability to Rising Oil Prices: Options for Asia?, comes not a day too soon. International oil prices are threatening to close in on the $100 per barrel prediction made by Goldman Sachs some time ago, a figure dismissed as fear-mongering by some. Though countries like India and China are less vulnerable to this price spiral because of variety of reasons?like the higher dependence on coal, economic resilience and large reserves?it could still have an adverse impact on human development, and therefore deserves top-level attention. Though India has cushioned the impact of the steep price hike through a combination of subsidies and reduced taxes on petroleum products, the UNDP report warns that the full impact will set in sooner rather than later. At some point, the energy bills will simply need to be paid, and fiscal flexibility cannot stretch interminably. Domestic consumption will have to be crunched, and the government will have to bite the bullet by passing on the price rise to the people at large.
Should panic buttons be pressed? The additional $400 billion to be paid for oil imports by the region, a figure 20 times the aid flow to a part of the world that accounts for three-fourth of the world?s poor, is certainly a big drain on resources, and points to the urgent need to develop alternate energy sources that would reduce the dependence on oil, and technologies that would improve recovery rates of available reserves. According to the UNDP report, high prices of hydrocarbons have pushed the poor down the energy-use ladder, forcing them towards inferior fuels like bio-mass and dung cake, both of which are bad for the environment (a big global concern now). In India, the gas supply network does not even reach the poor. Perhaps a way out is a further reduction in oil taxes?which, says the report, has pushed up retail petrol and diesel prices to the highest in South Asia. Another solution is to re-target subsidies, which tend to flow to the rich. Just take LPG. According to the report, around 40% of the LPG subsidies go to the top 7% of the population. If the country?s apathy towards climate change is worrisome, this is downright scandalous.
