The Hindu Business Line : Delicately balanced

Given the crushing burden of crude oil prices, the Government has done well to rest that on many shoulders: Consumers will bear the 11 per cent rise in the prices of petrol, diesel and LPG prices; the Centre will forsake some taxes as will some State governments; crude oil producers will offer price discounts and some burden is being passed on to future tax-payers with the Government issuing more IOUs (oil bonds) to the oil marketing companies. A price increase alone would have been politically suicidal. At the same time, the Government would clearly have been guilty of administrative irresponsibility had it continued to dither on a policy response. After all, it cannot take away the pricing freedom from these companies and remain a mute spectator to their operations turning completely unviable.

In the event, the Government has attempted a clever balancing act, but such a course of action is not without its adverse consequences to the economy. The Government is clearly hoping that oil prices will somehow correct themselves when it is pay-back time on these debts or that the economy would be sufficiently resilient by then to handle these additional financial commitments without too much effort. Maybe the problem of unravelling the fiscal mess will land in the hands of a successor Government.

It is ironic that at a time when the Central taxation of mass-consumption petroleum products has been brought to negligible levels, the Government should be having such a hard time defending the latest price adjustments. The oil sector had been perceived by successive Governments as milch cow to extract resources for funding public expenditure. This inevitably led to huge distortions in the prices of petroleum products as the sector failed to respond adequately to the changing petro-product consumption pattern. For instance, the proliferation of two-wheelers and auto-rickshaws has transformed petrol from an item of elite consumption to one that is at the core of a private solution to the problem of affordable mass transportation. Not for nothing is the Left opposed to any price revision in petrol as well.

In the circumstances, the Government could have taken advantage of the softer international crude prices through the better part of the current decade to not only rationalise the tax structure but also free oil companies of their stultifying public ownership character and thus pave the way for a seamless shift towards a market-based pricing regime. That window of opportunity has been lost irretrievably, and with India’s crude basket ruling at a high $123, the Government has very limited policy options in the days ahead.

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