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Crude Oil Price Rise – How And Why

Relevancy

  • G.S. Paper 2,3

Why in news?

  • Crude oil prices have risen to their highest level since late-2014.
  • In this backdrop, changes to the domestic fuel pricing regime have raised some concerns.

How things progressed recently?

  • Brent crude oil is the international benchmark price for oil.
  • It was priced around $27 a barrel as late as January 2015.
  • It has recently breached $75 per barrel.
  • The price rise is driven by a deepening economic crisis in Venezuela.
  • It is also a result of the fear of US’s consideration on reimposing sanctions against Iran.

Why is it a concern for India?

  • The price of the Indian basket of imported crude oil, too, has risen sharply.
  • Worryingly, India primarily meets its energy needs through imports.
  • Oil imports rose by over 25% in 2017-18 to $109 billion from a year ago.
  • Elevated oil prices could affect India’s trade deficit.
  • Consequently, the current account deficit could also increase.

How is India’s domestic fuel pricing regime?

  • The Centre introduced the dynamic fuel pricing mechanism in June last year (2017).
  • This allowed oil marketing companies (OMCs) to revise fuel prices daily.
  • State-owned fuel retailers were revising the prices in tune with changes in international prices.
  • Notably, the price of Brent crude oil has increased by more than 50% since June last year.
  • It has risen to the highest level since late-2014.
  • Responding to this, the government has recently asked public sector oil companies to pause their daily retail price revision.
  • The oil companies have thus kept petrol and diesel prices unchanged for nearly two weeks.
  • This is despite the rise in average price of the Indian basket of crude oil.

What does all this suggest?

  • Oil companies have exerted pressure on the marketing margins of public sector oil companies.
  • The average marketing margin has considerably gone down by about 45%.
  • This would impact the oil companies as they may face a capital crunch.
  • India’s oil exploration and refinery upgradation efforts could slow down.
  • The performance of OMC stocks in the last few weeks also suggests that the markets are not convinced.
  • The government has discretionarily stopped a market-linked pricing regime.
  • Regardless of the reason, such an intervention undermines the credibility of its own policy decision.
  • Worryingly, the decisions are largely influenced by political considerations such as elections.
  • The policy of transferring the burden to the OMCs by offloading the burden on consumers is unsustainable in the long run.
  • The government should opt to ease the burden of fuel taxes.
  • A possible option is to bring domestic fuels under the purview of the goods and services tax.
  • For now, the government could bring down prices by reducing excise duties on oil.

Rail Accidents & The Need For Amendments In Railways Act

Relevancy

  • G.S. Paper 2

Why in news?

  • The recent deaths of schoolchildren at an unmanned rail crossing highlight why the Railways Act must be amended.

What are the flaws in compensation or claims procedure of the victims?

  • In relation to claims for railway accidents, the Railways Act provides for fixed compensation on predetermined scales.
  • It also provides a forum for passengers to make claims in the form of Railway Claims Tribunals situated in different parts of India. But there is a limitation.
  • Only a passenger on a train can make a claim before the Tribunal.

What are the concerns?

  • Passengers of a bus or motor vehicle who may have been harmed after a collision with a train can only approach the Motor Accidents Claims Tribunal.

Important cases :

  • In Donoghue v. Stevenson (1932) case, SC held that – the duty of care for the Railways extends not only to those who use the Railways’ services but also to people who are “neighbours” — namely, users of vehicles on roads that intersect with tracks.
  • In other words, there is a common law liability for the railway administration for an accident at an unmanned crossing, even in the absence of specific provisions in the Railways Act.
  • An action at common law can be filed against Railways because the Railways was involved in what are recognised as dangerous operations and hence is bound to take care of road users.
  • Railways should take all precautions that will reduce danger to the minimum.

What does the Railways Act say?

  • The Railways Act 1989 (through Section 124) provides compensation on strict liability basis.
  • This means that “when an accident occurs in the course of working a railway” (a collision between trains, or when one is a train carrying passengers, or derailment, or any other accident with a train or any part of a train carrying passengers), then whether or not there has been any wrongful act, neglect or default on the part of the railway administration, an injured passenger or one who has suffered a loss can lawfully maintain an action and recover damages.

What is the way ahead?

  • It is time the government amends the Railways Act to provide for compensation on a proactive basis without driving victims or their families to file applications in Tribunals or Courts.
  • It is also essential to include within Section 124 of the Railways Act a provision for a claim from a “neighbour to a passenger” in the manner that the Supreme Court recognises, namely, a road user of a motor vehicle.

 

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