Political Environment of India

Political Environment of India

The political environment in India is one of a federal republic. ONGC is state-owned but this does not mean that the GoI is good for ONGC or doing things in the best interest of ONGC right now. The proposed mergers of HPCL, BPCL with ONGC, and Oil India with IOC were the GoI’s ideas. This produced uproar and the mergers we set aside, but not without the GoI stating that the government will have to restrict the respective companies to their core businesses. ONGC is also being made by the GoI to focus on exploration and production (E&P) of oil and gas. ONGC had been starting to move downstream and diversify its business by going into the refining and retailing business but the GoI put a halt to this. The positive side of having the political backbone of ONGC is that it gives the company stability and some security. When ONGC started they had multiply protection policies in place that kept them safe from global competition. As the years went by, the GoI deregulated the industry and took away the state protection policy that kept ONGC safe. This has lead to new opportunities but it has also opened the door to a lot more threats. 

With the GoI focusing so much on oil and gas E&P and forcing ONGC to focus on it as well, it is seemingly making E&P a core rigidity for the company. September 25, 2007 has found the GoI saying to ONGC that they need to “produce or perish” and that they will become a marginal player in the industry if they don’t comply. These are harsh words by the government and could be a fatal blow to ONGC for future business ventures and success. The GoI also recently blocked ONGC from bidding on a Nigerian oil field that would’ve helped increase their gas and oil assets outside of India. The GoI did not feel this was a good choice and blocked the decision. Through all this it shows a highly influential “owner” of ONGC who is commanding them to do things and not do things and not really knowing what’s best for the company. This is a huge hindrance to ONGC.