Comment

Less than a fortnight after hiking the price of petrol by Rs1.82 per litre, the oil majors led by the Indian Oil Corporation have slashed its price by a higher margin of Rs2.22. The ostensible reason —the downward drift in the international market for motor spirit and the rupee-dollar exchange rate ruling more or less stable at around Rs49.90 per dollar.

So, with an over-recovery of Rs1.85 per litre in this commodity, thanks to these favourable developments, the marketing companies have decided to pass on the benefit to the consumers.

The under-recovery on account of this commodity is thus neutralised.

Indeed, this scenario was not exactly a bolt from the blue. Ever since the increase in petrol earlier this month, the government was on the defensive and the Chairman of the Indian Oil Corporation in his interaction with the media, gave ample hints that a downward revision was on the cards. The company would not profiteer for a moment but would pass on the benefits of any softening trend, he had said.

But there is more to this than meets the eye.

The political furore that had ensued and the winter session of Parliament around the corner, had made rollback inevitable; behind this move, clearly one can detect government pressure as well. This is because, ever since petrol was decontrolled, the change in petrol prices was often less than warranted by market fundamentals, so that even in respect of this commodity, the companies had reported under-recoveries, though they were much less than in respect of diesel, kerosene and LPG.

Will the oil marketing firms display the same alacrity when the petroleum situation undergoes a change?

This may occur very soon. Consider the emerging trends. On the day the petrol price was lowered, the rupee had closed at a 32-month low of Rs50.68 per dollar and on Tuesday, it had even breached the 51/dollar mark.

The Indian crude basket had ruled at $112.44 per barrel and the undertone is bullish. Thus, the justification advanced for the cut in petrol prices for the next fortnight has already been nullified to some extent. That is to say, the respite from higher prices for petrol may be shortlived.

But, will the oil companies take the right cue and resort to a hike in response to the real time developments in the global oil market?

Or, will the government give them a free hand in acting as they deem fit? The answer is in the negative.

If the oil companies have indeed passed the benefit of stable crude prices and the stable rupee-dollar exchange rate, it is commendable. Profiteering is certainly a bad business practice and they have rightly gone on record that they would not resort to it. But, to be viable, the oil companies must be able to make a reasonable profit to reward the stake-holders and augment their reserves.

Moreover, they have stated that they continue to suffer from huge under-recoveries in respect of the other three key petroleum goods and their finances are shaky. They had to resort to heavy borrowings and the government is yet to release the promised sums for the under-recoveries even during the first quarter of the current fiscal year. Now, with another bout of hike in petrol rendered a difficult proposition, the going is bound to tough for them.

Ironically, on the same day the cut in petrol price was made, the oil majors have resorted to an increase in jet fuel prices for the second time this month. Rightly, it has not created any political storm even though the turbulent times the domestic aviation industry is passing through turbulent times. Here the ruthless Darwinism of the market is allowed full play but when it comes to motor spirit - and indeed for diesel, kerosene and LPG - the freedom of action is denied to the petroleum marketing companies.

While some justification may be advanced, in the Indian conditions for the latter three, being mass consumption items, the hue and cry raised whenever petrol moves northward is hard to understand. Barring the two-wheeler users, who may be said to belong to the upper middle class, the user segments of motor spirit belong to the relatively better - off sections of the population. This is certainly the case of politics triumphing over economic logic.