Diesel opportunism

The Centre’s decision to put further hikes in diesel prices on hold smacks of opportunism, in an election season. Softening global crude prices and a strengthening rupee — which have contributed to a reduction in losses on sales of the fuel — may have provided some ‘justification’ for doing so. Indeed, in the last one month, the average price of crude imported by Indian refiners has dropped by some $6 to under $102.5 a dollar, even as the rupee has appreciated from around 62 to 60 to the dollar. This has enabled state-owned oil marketing companies (OMC) to effect a reduction of almost one rupee per litre in the retail price of petrol from April 1 — just a week before the first phase of polling. But being a de-controlled product, consumers are entitled to benefit from any favourable swing in international prices or exchange rates here; they needn’t thank the Centre for that.

The same, however, does not apply to diesel, which is under price control. The Centre had, in January 2013, ‘authorised’ OMCs to raise retail prices by 40-50 paise every month. As a result, the price of diesel in Delhi has gone up by ₹8.34 a litre since then. The corresponding ‘under-recovery’ by OMCs on diesel sales has narrowed from ₹9.6 to ₹5.93 a litre. It would have fallen further this month but for OMCs not being allowed to hike prices. The Centre has defended this by citing the Kirit Parikh Expert Group, which recommended that the subsidy against under-recovery on diesel sales be ‘capped’ at ₹6/litre. Since the required subsidy payable to OMCs has now dipped below this cap, it is argued that there is no ‘need’ then to raise retail prices further.

But this line of reasoning is really difficult to buy since the Centre had neither declared it would follow the advice of the Parikh panel nor mentioned the ₹6/litre cap until very recently. So, why this sudden loyalty to a report, that too one which had never recommended freezing price increases once the under-recovery had fallen below ₹6/litre. The expert group had only proposed a ceiling and not a floor on the subsidy! Moreover, its report submitted last October has not been officially adopted. Instead, the Centre has reversed the Union Cabinet decision of January 17, 2013 that gave OMCs the freedom to raise diesel prices “within a small range every month”. The reference to the Election Commission on the matter of a monthly price increase automatically following from that decision — based on a dubious interpretation of the Parikh panel report — is to prevent a possible censure of its decision. The Commission should reject the proposal and treat any move to freeze diesel prices as an election-eve inducement. Not doing so would contribute to bad policy as well as confer the ruling party an unfair political advantage.

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