The case in favour of decontrolling oil prices has been made on a number of occasions in these columns. At an intellectual level, it is hard to argue against it. But more than the argument, the problem lies in the lack of political will displayed by the government to carry out the necessary reform. The recommendations of the long-awaited Kirit Parikh committee report on oil prices, submitted to the petroleum minister on Wednesday—the committee endorses decontrol—provide the government yet another political opportunity to finally abolish the administered pricing mechanism. Of course, the finest political moment for decontrol may have passed. The global slowdown had pushed the global oil prices to well below the $60-65 per barrel mark—that is the price at which oil marketing companies break even. If the government had seized the moment of its re-election to push decontrol while global oil prices were still moderate, there would have been no immediate (or at least sharp) rise in prices. Now, with global oil prices hovering at around $75 per barrel, decontrol will mean a sharp rise in prices. The Parikh committee has suggested an immediate Rs 100 hike in the price of LPG and Rs 6 rise in the price of kerosene. Subsequent, periodic revisions should be linked to ability to pay, with rise in agriculture GDP as one indicator of that. Petrol and diesel prices, when completely decontrolled, are likely to rise by between Rs 2 and Rs 5 per litre.
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Still, it makes sense for the government to bite the bullet now rather than postpone it for another day. For one, there are no elections around the corner. Second, global oil prices will only rise from here as economic recovery gathers steam—three-month oil futures are already hovering at around $90 per barrel. In such a situation, oil marketing companies will continue to make losses in the near future. They will then expect the government to foot this bill, either in cash or in bonds. Either way, this will be an unnecessary burden on the fiscal bill, something the government ought to be worried about in the run-up to the budget. Remember, also that disinvestment hasn’t been scaled up enough to strengthen the revenue side of the budget’s equation, and 3G auctions are now postponed to the next financial year. In this scenario, the government ought not continue providing subsidies to the largely middle-class consumers of petrol, diesel and... The views, opinions and comments posted are your, and are not endorsed by this website. You shall be solely responsible for the comment posted here. The website reserves the right to delete, reject, or otherwise remove any views, opinions and comments posted or part thereof. You shall ensure that the comment is not inflammatory, abusive, derogatory, defamatory &/or obscene, or contain pornographic matter and/or does not constitute hate mail, or violate privacy of any person (s) or breach confidentiality or otherwise is illegal, immoral or contrary to public policy. Nor should it contain anything infringing copyright &/or intellectual property rights of any person(s).
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FE Editorial: Oil can be well - Financial Express
