The Hindu Business Line : FUELLING THE SUBSIDY ROW

In his Budget speech, the Finance Minister described subsidy as a "divisive" issue and called for a consensus on it. As if on cue, the Petroleum Ministry called for an increase in the fuel subsidy through budgetary allocations. According to the Petroleum Minister, Mr Murli Deora, the oil marketing companies need to get their share of the cess collected from oil exploration companies in the form of a hike in the subsidy given their parlous state; crude oil has become costlier but the domestic product prices have not been raised in tandem. The Budget has increased the allocation for fuel subsidy from Rs 2,900 crore to Rs 3,080 crore but the Petroleum Ministry does not think this is adequate.

The issue of fuel subsidy acquires urgency in the light of the yet-to-be-accepted recommendations of the C. Rangarajan Committee on petroleum and petro-product pricing. No word has come from the Finance Ministry or the Prime Minister, who is personally involved in the issue of subsidies, on the report though it is frequently mentioned, most notably in the Budget speech. At first glance, the Petroleum Ministry's demand for a higher subsidy allocation appears justified given the magnitude of the burden — Rs 10,245 crore — the oil companies are being made to bear. The budgetary allocation of Rs 3,080 crore appears a trifle. Also irksome for the companies and the Ministry is perhaps the extent of subsidy that the fertiliser and food sectors are enjoying in comparison. Given the critical nature of the petroleum sector it would appear that the oil companies are justified in asking for more budgetary allocations. If the Food Corporation of India can get the food subsidy to channel cheaper grain through the public distribution system, why should the oil companies not be given the same treatment?

The issue appears intractable; it need not be so if the Rangarajan Committee recommendations are considered. Reducing the subsidy burden appears to be the central concern of the panel. To that end it wants oil companies to be allowed to fix fuel prices not on the existing import parity price system, but on a trade parity pricing one. The latter avoids the dangers of currency fluctuations and changes in Customs duties. Interestingly, the panel has recommended restricting the subsidy on kerosene to those below the poverty line — a principle the government tried to implement for food subsides. LPG prices should be freed of subsidy given the increasing prosperity of the users — the middle-class. The Rangarajan Committee has suggested raising the price of cooking gas gradually such that the subsidy element is abolished. With adequate safeguards for the poor, an economy with 8 per cent growth will weather hikes in fuel prices and better still learn to use fuel far more efficiently.