Before They Control The Fisc
The Empowered Group of Ministers on petroleum pricing, constituted by Prime Minister Manmohan Singh, needs to go ahead and decontrol oil prices without delay. Crude oil prices are clearly on a hardening trend and retail prices of petro-products need to be promptly revised for the greater good. Not doing so and policy pussyfooting over oil pricing would have grave budgetary implications, given the volumes in oil, and fiscal consolidation would go for a six; it would also send wholly wrong price signals across the board. Already, the under-recoveries in oil are projected at over Rs 87,400 crore and rising. In any case, government control and administered prices of oil products is an anachronism from the days of pre-reform and autarky. For years now we have gainfully done away with the perverse practice of administered pricing of steel, cement, coal et al, and we do need market-determined, efficiency prices in the huge, fast-growing oil economy as well. And especially so, as three-fourths of our crude oil demand is met by imports. Besides, multiple expert committees have called for comprehensive oil price reform and the latest Kirit Parikh panel has reiterated decontrol of petrol and diesel prices.
The fact of the matter is that public-sector oil companies are mandated by law to determine retail prices and continuing governmental control is a glaring incongruity in a supposedly reforming, outward-oriented economy. While okaying price decontrol, the ministerial group also needs to iron out continuing policy glitches and anomalies. The taxes and duties on oil products need to be rationalised. Also, the subsidy on cooking gas needs to be phased out and subsidised kerosene proactively substituted with solar lanterns and other green products. It would, in the process, save the exchequer over Rs 20,000 crore per annum, and remove fuel diversion and adulteration. Further, the effective ring-fencing of retail oil sales needs to be done away with, and the duty differential between crude and products removed for a thriving, competitive market for petro-goods. Given the low value-added in oil refining, even a minimal duty differential can mean a large effective tariff protection.
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