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Hike In Petro-Products Prices UPA‘s Irrational Approach

Updated: July 16, 2011 11:03 am

As if the hike in prices of petro products was not enough last month, the people of the country have further been burdened by the UPA government. In May, petrol was hiked by Rs 5 per litre, now diesel and cooking gas retail prices have been enhanced by Rs 3 per litre and Rs 50 per cylinder respectively, which is the largest ever, equal only to the price hike in June 2008 during the UPA-I regime. According to media reports, chief executives of state-run oil companies had rushed to Delhi to seek Petroleum Minister Jaipal Reddy ‘s support in raising petrol prices by 5-6 per litre after the government unexpectedly deferred a decision on raising diesel, cooking gas and kerosene rates. Petrol prices had been deregulated, but oil firms were selling the fuel at Rs 8 less than international rates at that time, as the oil ministry had informally asked them to hold back a price hike until assembly elections ended on May 10. Oil companies had taken for granted that the panel of ministers would raise prices of kerosene, cooking gas and diesel for the first time since June last year. Since then, crude oil had risen from $75 a barrel to $124 a barrel before slipping over $16 in last month. In this backdrop, the government ‘s response at oil price reform appears to be irresponsible, as oil price has jumped over Rs 24 over the last two years, which means Re one per month. Yet The Finance Minister Mr Pranab Mukherjee and the Petroleum Minister Mr S Jaipal Reddy are claiming that the prices of the petroleum products have been increased to offset the losses of the oil companies. The Ministers are concerned about the losses of the company but do not show any concern for the same common man in whose name they are today in power. This decision of the government will further add to inflation. The insensitivity of the Congress government at the Centre becomes more glaring from the fact that it has increased the prices of kerosene oil, diesel and LPG and it is claiming that it is a very nominal increase. It does not appear to care about the common man, who is already reeling under the ever-burgeoning price rise. Here, it is worth mentioning that the BJP ‘s opposition to price hike appears to be hollow, if the BJP-ruled states do not slash taxes and surcharges on pertro-products. It is, therefore, apt to say that the time for populist mobilisations is past, and those who indulge in them have found their electoral utility to be sharply limited, as voters are now able to judge which party appears to be able to deliver good governance, when in power.

            In fact, petroleum product pricing in India is frequently seen as a black hole of subsidies. Economists and oil companies complain about the impacts those subsidies have on public finances, financial performance of oil companies and demand-side management. However, on closer analysis, the issue of petroleum product pricing in India is more complex than the one-way flow of subsidies reported in the press. So the question to be answered is: How high are subsidies really? Contrary to common perception, India’s retail price for petro-products is relatively high despite subsidies. In fact, the total government (central and states) taxes and surcharges on petrol products exceed by far the annual budget subsidies for these products. There, is thus, a certain rationale for the government to maintain the current system, even though it has negative implications on the financial health of public oil companies and acts as a deterrent to private investments in the sector. In addition, the policy rationale of providing subsidies to allow poorer segments of society access to commercial fuels, cannot be proven conclusively and irrational choices among different fuels are being made due to distorted retail prices. The Indian energy market and the economy as a whole would be better off if the government would implement a consistent, transparent and rational fuel pricing system but with a view to political imperatives, this is unlikely to happen in the short-term. And a hike in prices of petro-products would have a ripple effect. No surprise then the common man is faced with scenario of rising prices of essential commodities for the last several months. And instead of bringing the prices down, this government is adding to the list of commodities that are getting dearer and dearer. In Shakespeare’s Hamlet, Marcellus tells Horatio: “There is something rotten in the State of Denmark.” Similarly, there is always something rotten in the UPA regime. Earlier, in spite of the Supreme Court ‘s reprimand, this government allowed foodgrains to rot and refused to distribute them to the hungry. Then, it allowed imported onions to rot in ports while the aam adami was deprived of them even at a reasonable price. Now the increase in prices of petro-products is having its toll. Restructuring petroleum product prices may be an acceptable longer-term objective but any sharp increase in the retail prices will be hugely unpopular in a country where the basic needs of hundreds of millions of people are nowhere close to being met, notwithstanding the high economic growth rate. The government ought to take a major share of the blame for failing to meet this challenge from the standpoint of the people and with a longer-term policy perspective.

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