No consumer likes a price increase especially when it happens with an essential commodity, but a country that imports three-fourths of its oil cannot ignore global price trends for very long. Global oil prices have remained at high levels over the past several months, but Indian consumers were largely insulated because for many weeks the Government could not bring itself to decide on how to pass the burden on. To its credit, it did so on Friday by increasing the prices of diesel, kerosene and cooking gas, reducing duties on petroleum products and abolishing import duty on crude oil. Though not comprehensive enough, these measures show that the government has devoted some thought to the issue. It was evident that to limit the increases in the selling price of the fuels, the Government needed to sacrifice some of its revenues, about Rs 49,000 crore of revenues for the whole fiscal year as it turned out.
What is not so commendable, though, is that the government continues to control the levers of the oil industry. Despite public pronouncements of decontrol, there is no doubt who the ultimate boss is when it comes to pricing decisions. Though petrol pricing was freed a few months back, oil companies still need the government's tacit nod to adjust prices. By holding on to controls, the Government is only stifling competition in the sector. This newspaper has always argued for deregulation and free competition in the oil industry, and not without reason. Just look at what competition and free market forces have achieved in the telecom industry, reducing tariffs to the lowest in the world. The situation is the opposite in oil, where private players, and sizeable ones at that, are not even interested in participating in the domestic market. The Reliances and Essars of the world are happy exporting products from their state-of-the-art refineries, simply because of the uneven playing field in the domestic market. The Government and its convoluted subsidy-sharing mechanism have ensured that private players do not enter petroleum product retailing; and the consumers are the losers.
What prevails now is a rather opaque system where the oil companies claim staggering numbers as “under-recoveries” and the government factors them in its calculations. These “under-recovery” numbers are not verified by either the government or the regulator. The concept of “under-recovery” is itself questionable and has often been misrepresented as losses of the oil companies, which it is not. Serious reform is needed in the industry. For a start, the regulator, the Petroleum and Natural Gas Regulatory Board, needs to be empowered to verify and approve price adjustments. Second, prices should be deregulated with subsidies on products such as kerosene and cooking gas clearly targeted and delivered only to the needy. Finally, competition should be encouraged in petroleum retailing by levelling the field for private players to participate. These alone can ensure that the government does not have to engage in fire-fighting every time there is a surge in global oil prices.