Panch Tattva Wisdom

Many people think that the solution to high crude oil prices is “cheap fuel.” But for an economy, that is not always true.

The real objective should be this:

Household expenditure on energy as a percentage of income should remain stable over decades.

There is an important difference between:

• cheap fuel, and
• low dependence on fuel.

If fuel becomes very cheap whenever international crude prices fall, economies slowly become addicted to oil:

• people buy larger vehicles,
• cities spread farther apart,
• public transport weakens,
• industries become energy inefficient,
• logistics depend excessively on diesel.

Then when crude prices rise sharply, the entire economy suffers because demand for fuel is no longer flexible or “elastic.”

A stronger long-term policy is to allow pump prices to broadly reflect international crude prices, even when crude becomes temporarily cheap. This encourages:

• fuel efficiency,
• better public transport,
• compact urban development,
• investment in railways,
• electric mobility,
• solar energy,
• and lower oil dependence overall.

In such a system, welfare improves not because fuel is artificially cheap, but because the economy needs less fuel per unit of prosperity.

This is what several developed economies learned after the oil shocks of the 1970s. Countries that improved energy efficiency became more stable economically even with relatively high fuel prices.

For India, this issue is especially important because the country imports most of its crude oil. Excessive oil dependence can:

• weaken the rupee,
• increase inflation,
• worsen trade deficits,
• and expose the economy to global geopolitical shocks.

Therefore, the long-term economic goal should not merely be “low petrol prices.”
It should be:

An economy where household welfare is protected because energy demand itself has become efficient and elastic.

That is a deeper and more sustainable form of economic strength.

Krishna Khandelwal