Can India’s startup ecosystem join hands with the Government to reduce our oil import dependency
If you have been following the latest trend of oil prices, you have got every reason to be happy. As of this writing, oil prices have fallen for the 10th consecutive day after having risen relentlessly for 16 days in a row.
While it was quite clever of the government not to increase the crude oil prices before Karnataka went to the polls, the state-owned oil marketing companies did lose close to Rs 500 crore in these 19 odd days as they absorbed higher cost resulting from the spike in international oil rates. There was only one way the price could move henceforth and just a day after the elections, the price of petrol was hiked by 17 paise a litre and diesel by 21 paise a litre. This trend continued for 16 more days and to add fuel to the fire was the 1 paisa cut on petrol by Dharmendra Pradhan (Minister of Petroleum & Natural Gas) which resulted in him drawing a lot of public ire and fury.
Being the third largest oil importer in the world, the fortunes of our country’s finances are inextricably linked with oil. Here are some statistics to supplement the same :-
i) We import more than 80% of our domestic oil requirement every year and this year, the gross petroleum imports in value terms jumped 25 percent to $92 billion in the April-Feb 2017–18 period.
ii) In 2015–16, India imported 202.9 MT (Million Tonnes) crude oil at USD 64 billion. In 2016–17, crude oil imports stood at 213.9 MT, costing USD 70.2 billion.
iii) The Centre is projected to earn over ₹10 lakh crore from levies on petrol and diesel between 2014–15 and 2018–19. More than ₹1 lakh crore has been earned each year from these levies in the past 4 years.
iv) For every $10 increase in oil price, consumer price inflation(CPI) increases by 0.6–0.7 percentage point and India’s current account deficit (CAD)balance gets worsened by 0.4% of the GDP.
Thus, at a macro level, rising crude oil prices does adversely affect the fiscal health of the government and country. But how does it affect the country at a more granular level ? Following are some of the observations of experts :-
i) Loses to state-run oil marketing companies
According to analysts,companies like Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOC) incur an increase in the “fuel and loss” component due to higher crude prices. Fuel and loss refers to the cost that refiners incur due to the fuel consumed to run their plants and the fuel lost in the system while processing crude oil into petroleum products.
ii) Uncertainty in Private Capex
Higher oil prices lead to expectations of higher inflation and reduce the chance of a potential rate cut by RBI. Higher oil prices also affect corporate India’s profit margins and can delay the much awaited earnings revival.
iii) Negative impact on tyre, auto and aviation stocks
Crude oil derivatives such as carbon black is an important raw material for Tyres. Rise in crude oil price negatively affects this industry and the stock prices of companies like MRF, Ceat , JK Tyres take a beating. The increased crude oil prices can lead to lower margins for airline companies and increased fare for the travelers if the airlines decide to pass the buck to them. Also, auto companies like Mahindra &Mahindra, Ashok Leyland will be affected in the farming segment since majority of the tractors and buses still run on diesel.
iv) Increased grocery bills
Prices of daily-use consumer products such as packaged snacks, detergents and cooking oils may increase by 4–7% if the inflationary trend continues. Consumer staples are directly affected by crude oil prices because petroleum derivatives are used in packaging material including bottles and tubes. The rise in crude oil prices compounds the effect of higher duties on palm oil, which is used in some food products.
And now comes the meat of the issue!
Given these observations, it would be an understatement to say that the financial situation is quite grave. However, given the supreme innovation quotient of our startups, I personally feel that they are well poised to tackle these challenges. All they need is some pragmatic support from our government. Following are some of my proposals:-
i) Methanol for railways and waterways
In December 2017, Nitin Gadkari spoke about the creation of Methanol Economy Fund which would cut India’s import bill by more than 30%. Startups can explore how methanol can be used in the transportation sector, particularly in Railways and Waterways (Marine) since these two modes of transportation rely heavily on diesel and burn millions of liters oil each year.
ii) More innovation related to oil drilling
According to a GE report, India has 18 trillion cubic feet of reserves yet to be produced and 27 trillion cubic feet of reserves yet to be developed. Further, less than 25% of India’s sedimentary basins are explored. Tapping onto this inefficiency is Super Wave Technology which is developing an alternative extraction technology to initiate fractures in shale reservoirs located in the depth of 1000–1500 meters. They are replacing water with shock waves which would help drillers avoid the water contamination and broader environmental problems. While the thinking applied by the company is commendable we need more such innovations around oil extraction so that a vast chunk of our oil requirements can be met domestically.
iii) Improving Electric Vehicle adoption and charging infrastructure
Indian ride-hailing firm Ola’s pilot project to test a fleet of electric vehicles in Nagpur was expected to bring a much-needed change in the perceptions related to electric vehicle adoption. However, long waiting times at charging stations and high operating expenses caused a lot of frustration among the Ola drivers who wanted to return their cars and switch to their older fuel models. The government should step in here to provide incentives first for increasing the count of charging stations and then for the manufacturing of electric vehicles. For example — Once an electric vehicle startup reaches a particular threshold of users, they should be given tax exemptions from the government.
iv) Implementing electric bus services for Indian MNCs
India’s top IT companies like Accenture, TCS, Wipro, Infosys, and Capgemini have more than 5 lakh employees combined. Also, a lot of biggies like Cisco and LG have employee buses which a lot of people avail in order to travel from office to home and vice versa. Companies like Mahindra & Mahindra by virtue their new products in this domain can strike a deal with these MNCs to use their Electric Busses instead of their usual diesel buses. Although it won’t drastically improve India’s oil-importing scenario, the lessons which the auto-maker will learn from this pilot project will help the local government and other companies to tackle this situation better. A similar deal can also be struck with leading logistic startups in order to see the effectiveness.
v) More support to R&D on Public Electric Charging
I have a belief that our engineering syllabus contains very few courses related to this domain. Industry experts can collaborate with the top engineering and science institutes to provide skill development sessions. Also, leading auto-makers and energy companies can conduct hackathons to see how the participants go about solving the typical challenges associated with electric charging.
In the end, I feel that although the challenges are aplenty but so are the opportunities to solve a problem which has such high stakes involved. Our country certainly requires entrepreneurs like Elon Musk who have huge risk appetite and are far sighted enough to go out all guns blazing to solve this imminent problem.
