Sunday, March 20, 2005

India Insulates Its Consumers From Oil Price Hikes

This Business Standard editorial notes that the petroleum industry in India is still partly run by the government, and has to date not passed on price hikes for those four products whose prices it regulates. Obviously that cannot continue, but it points out a significant problem facing both China and India: both have much deeper penetration of their governments into their local energy markets. Both countries will have to pay the world price for oil ultimately; markets can't be legislated away. Local subsidies mask inefficiency, and those will eventually get shaken out, though it may be more painful if they wait rather than taking steps now.