Better bitter

Two moves by the Centre — the partial rollback of last week’s rail fare increases and the deferral in the revision in prices of domestically-produced gas — shows that the new government, despite its comfortable majority, is susceptible to political pressures. The substantial reduction in the extent of fare hike for suburban rail commuters was clearly a response to protests from the BJP’s coalition partner Shiv Sena, which fears it will harm the alliance’s prospects in the Maharashtra Assembly elections. One suspects similar political calculations behind the decision to put off a domestic gas price revision that was to take effect on July 1 — it was originally due from April 1 — by another three months. This government probably did not want to be seen as favouring a particular corporate house in allowing a doubling of gas prices based on the Rangarajan Committee’s formula; it is a different matter altogether that the major beneficiary here would be the state-owned ONGC and Oil India.

To be fair, the ₹750-800 crore revenues foregone due to the relaxation in fare hikes for suburban train users constitutes only a tenth of the estimated ₹8,000 crore additional mop-up for the Railways from the recent tariff rationalisation exercise. One may also be tempted to cut some slack for a government that promises to hold “comprehensive discussions” with “all stakeholders” before taking a final call on gas prices keeping “public interest” in mind. So long as this consultation process, which could even mean tweaking the Rangarajan panel’s pricing formula, is done within the next three months, the markets and investors may take the Centre’s action in their stride. Besides, the Centre may have some worries on the impact of higher gas prices on urea production costs that will also lead to a higher fertiliser subsidy outgo. Raising urea prices beyond a point may not be easy, more so in a bad monsoon year.

However, one cannot indefinitely delay administering bitter pills necessary to restore the economy’s long-term health. India is today importing about a third of its gas requirements at up to $15/mmbtu, as compared with the $4.2 price that domestic producers are receiving. It is in “public interest” to boost domestic exploration and production activity with a view to reducing imports that are only benefiting liquefied natural gas suppliers in Qatar or Australia. But this cannot happen if ONGC or Reliance — forget global hydrocarbon majors — are not going to get prices closer to import parity levels for gas extracted from our fields. Whether it is for gas, urea or rail fares, consumers must eventually get used to paying what would truly attract investments and incentivise producers in a competitive market-driven environment. One hopes the current political roadblocks to the much-needed reforms are temporary.