The Hindu Business Line : Fuelling a minor issue

TRANSPORTATION FUEL PRICES are up again in the country after six months, a period that saw volatile and ever increasing global oil prices. Since the last adjustment of petrol and diesel prices, on January 1, 2004, crude prices rose by more than a third; yet, petrol and diesel prices in the country remained unchanged. Tuesday's price revision was, therefore, overdue. Though the extent of revision is not enough to fully cover the rise in global prices, the Government deserves a pat for pushing through the price revision in the face of some strong opposition, even from its own supporters. By its latest action, the Government has signalled the continuity of reforms in the oil sector. Again, by dropping excise duty on petrol, diesel and LPG the Government has shown its resolve to protect consumers by sacrificing a part of its own revenues; a reduction in Customs duties as well would have sent out a stronger signal of such commitment though.

That said, it has to be pointed out that the Government has missed a golden opportunity to free the oil industry to determine its own prices in line with competitive forces. It is certainly not amusing to see the Finance and Petroleum Ministers confabulating with the Prime Minister to decide on a minor issue of revising retail petroleum product prices; something that should happen as a matter of course. And this, when the oil industry was supposedly unshackled more than two years ago with oil companies gifted the freedom to adjust retail prices in line with international trends. The problem, of course, is that the entire issue of petroleum product prices is seen as politically sensitive when the prices of more essential daily items of consumption such as vegetables, milk and eggs are not seen to be so. The only way the Government can get away from this is by encouraging free play of competitive forces in the oil-retailing sector, as indeed it now happens in telecom with salutary effects on prices. The Government should step in only during exceptional circumstances and that too, in an indirect manner by such actions as adjusting duties and taxes to help consumers.

As for subsidies on products such as kerosene and LPG (cooking gas), the Government ought to evolve a better system of directing them to ensure that they reach the targeted beneficiaries. Especially, the issue of subsidy on LPG needs to be revisited as urban households account for three-fourths of all households using cooking gas. It is a moot question if all of them need the subsidy. It is time the Government took a holistic view and framed a more pragmatic policy on the subsidy issue.