The Government should have opted for steep administered fuel price hikes rather than the current half-baked deregulation.
Does allowing state-owned oil marketing companies (OMC) to raise diesel prices “in small doses from time to time” and simultaneously “exercise discretion” amount to deregulation? Well, it depends which constituency the Government is trying to address. To foreign investors and global rating agencies, it could well claim that deregulation has actually happened. But the problem is that there has been no official statement till now, apart from Petroleum Minister Veerappa Moily’s sound bites, on the exact decision taken at Thursday’s Cabinet meeting – leave alone detailing what would the quantum of “small doses” of price corrections or the periodicity of “time to time” be. The Vijay Kelkar Committee had suggested a clear roadmap of hiking prices by Re 1 a litre every month till the entire under-recovery on diesel, currently Rs 9.6, is eliminated. In this case, the Government has apparently “authorised” the OMCs to decide how much and when to increase.
In doing so, it is being disingenuous, for no investor, foreign or domestic, really believes that the OMCs can act independent of the Government, despite being “authorised” to. Nor would the lay public buy the Government’s argument that the OMCs, and not it, are to be blamed for any price increase. And as elections approach – beginning with a string of major assembly polls from May, followed by the big national one in April-May 2014 – both the investors and the aam aadmi would probably see their fears or respite increasingly validated. “Deregulation” is good in theory and also sounds good. But in today’s environment, it makes better economic as well as political sense to go for old-fashioned “administered price hikes” and do it fast before the election season starts. That means increasing sharply now while the political window is still there – which is what the Rail Minister did through last week’s steep rationalisation of passenger fares.
Instead, the Government has simply let – that is, indeed, the right word – the OMCs to raise diesel prices for retail consumers by 45 paise net of State taxes, thereby barely reducing their under-recoveries amounting to nearly Rs 74,000 crore during April-December. While there is talk of their effecting similar “small hikes” every month, that possibility quite diminishes after around March. Simultaneously, bulk consumers like the Railways and state transport undertakings will have pay Rs 9.25 a litre more at a single go. That, besides being too much, creates a dual pricing system, which isn’t a great idea. Worse, the OMCs have been forced – no confusion there – to increase the annual entitlement of subsidised domestic LPG cylinders from six to nine per household, without any price revision. This is expected to add Rs 10,000 crore to their under-recoveries, which, on LPG cylinder sales, exceeded Rs 29,000 crore in April-December. In all, the Government’s latest actions will only worsen uncertainties for consumers, without in any way addressing the OMCs’ financial woes.