'The Current Policy Is Even More Inflationary'

The Chairman of the committee on Petroleum Decontrol spoke to Outlook about the fuel price hike announced by the government
'The Current Policy Is Even More Inflationary'

The government has accepted the recommendations of your committee but not in totality. Is this enough?
The principle of all our recommendations have been accepted. That is important as decontrol of this sector is crucial for India’s energy efficiency. But I am disappointed with what has been done with diesel. I would have been much happier if the government brought down excise and decontrolled diesel as well. To that extent, I am 75 per cent happy but 25 per cent unhappy with what has happened. 

The government has left the option open to intervene in fuel pricing if crude prices shoot up but has not defined a cut off mark.
It is a matter of concern that the government says that it will intervene on volatility and high prices of crude. It would have been nice if the government had stated specifically that it would intervene only if the global prices hit a point like $ 120 a barrel. This puts an uncertainty in every oil marketing company’s mind and the private companies would think twice before moving forward in this field.

What should be the right limit?
Ideally, there should be no need to intervene except for a sudden spike in prices and that too for transient causes like war etc which would be of short duration. But this is leaving it open.

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Kerosene prices have been raised but that would address only part of the problem.
The more important thing here was to rationalize the PDS allocation of kerosene in the states. Today some states provide 15 litres per family while some provide just 8 litres. The poorest 10 per cent of the population buy 3.5 litres of kerosene per month and spend 2-3 per cent of their monthly expenditure on this. If the government increased kerosene prices by Rs 6 per litre as suggested by us, it would still be around 2-3 per cent of their monthly expenditure. But the government has chosen to increase it by half of what we recommended.

What about LPG?
There is a strong argument about subsidizing LPG as a large number of rural women cook with bio mass based fuel and wood which are leading to health hazards. But the subsidy should be targeted. What is happening now is 60 per cent of the subsidy goes to the top 30 per cent people. At the same time, a dual pricing system will lead to corruption. I hope once the UID is in place, some kind of mechanism can be developed to deregulate kerosene and LPG.

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There is talk that these measures will fuel inflation...
The current policy is even more inflationary. Today we import 80 per cent of our oil requirements and if the cost is not passed to the consumer, the government has to absorb that. To recover it, the government can raise taxes most of which will be indirect tax. That would be unfair because instead of actual users, everyone will pay for it. So it is better that the actual burden goes to actual users. It will be a little inflationary now but in 4-6 months the inflation impact will be less.

The subsidy division between upstream and downstream companies has not been defined.
The government needs to work out a subsidy sharing system between the upstream and downstream companies. It should proportionately divide the sharing between ONGC and OIL who were given oil blocks by nomination as against others who got it through NELP. If all our recommendations were followed, the subsidy burden would have been of only Rs. 20,000 crore which the government could bear.

There seems to be no mechanism on when the prices should be revised and what should be the frequency of monitoring?
Why should the prices be monitored periodically? Only monopoly conditions should be monitored. In the US and Europe, prices change periodically and prices vary from company to company and from petrol pump to petrol pump. People will have to get used to that.

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This interview did not appear in print

 

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