Price of delay

-The Business Standard

 

Union finance minister Pranab Mukherjee was being economical with the truth when he said that last Saturday’s petrol price hike decision was entirely that of oil marketing companies (OMCs). True, the government correctly but belatedly deregulated petrol pricing several months ago, but it is clear that despite a sharp increase in global crude oil prices in the past six months, the OMCs restrained themselves from increasing domestic fuel prices owing to political sensitivities on account of elections to state assemblies. To that extent the delayed hike in petrol prices, despite their surge globally, was owing to political interference rather than corporate inertia. Brent crude oil price has in fact come down to less than US$110 per barrel in the past few weeks after the sustained rise from less than US$80 per barrel six months ago to almost US$125 a barrel a month ago. Thus, while last Saturday’s petrol price hike was dictated by global market trends, the delay in the hike was due to domestic political factors and, indeed, the quantum of hike was also a product of domestic politics, given that the consumer of petrol is subsidising the consumer of diesel, kerosene and liquefied petroleum gas (LPG) purely for political reasons.

None of this is news, even if India’s politicians and many in the media imagine it to be so. India’s energy prices have been below world prices for a long time. As an importer of petroleum, India cannot afford this luxury. The government of India’s Integrated Energy Policy, adopted in 2009, endorsed the principle that prices of imported energy inputs must be aligned with world prices. Yet, this objective has not been met. Even after deregulating petrol prices, the government continues to control the price of diesel, which is heavily subsidised. This has encouraged the growth of diesel-fuelled vehicles, including that of diesel-fuelled luxury cars. This is wholly unacceptable and antithetical to any rational energy pricing and energy security strategy. Kerosene and LPG remain highly subsidised. Kerosene subsidy in the name of the poor has fuelled a mafia that adulterates petrol and diesel with impunity. There is politics in this too.

While legitimate social considerations may hold back politicians from cutting back subsidies in diesel, kerosene and LPG, such social objectives are better served through targeted subsidy rather than the existing system. While administrative systems are being put in place to facilitate better targeting of fuel subsidies, the fact remains that India’s domestic energy prices can not be out of line with global trends. Long term imbalance in energy pricing constitutes a threat to energy security and, thereby, national security. Thus, India’s energy pricing system is dangerously out of date and out of synch with international reality and India’s national security.

For its part, the government must understand that long delays in adjusting prices naturally leaves it no other option but to go in for one time steep hikes, like last Saturday. Such one time hikes attract public attention and help mobilise consumer resistance. Rather,weekly changes in petrol prices, with the price going both up and down depending on global trends, would help depoliticise the issue. Just as the price of onions may go up and down, so too the price of petrol. Only when fuel pricing becomes a normal market phenomenon will its politicisation end.