Comment

Yet another report on the vexatious issue of deregulation of the petroleum industry is out. and for yet another time, the Kirit Parikh panel’s recommendations, run the risk of being pigeon-holed.

Not because the suggestions advocated by it are far-reaching — it largely favours the freeing of auto fuels from administrative controls with some caveats, while opting for the status quo in regard to domestic fuels accompanied by an immediate hike in PDS kerosene and LPG prices.

The subsidy regime will continue albeit with some modifications. It may be a wasted effort as in this issue, as in much else, it is not economic logic but politics, that sways policy making.

In the end, what may prevail is some modest increases across-the-board for all the four sensitive petrogoods to shore up the financials of the oil marketing companies and the continuation of the present dispensation.

This has led us to nowhere in the past and the same ad-hoc approach may prevail. Bluntly, the latest exercise may end us as an attempt in buying time.

From what has been in the public domain, the committee has proposed only modest steps. It wants the total decontrol of petrol prices, freeing of diesel prices at the retail level, streamlining the distribution of PDS kerosene with the issue of ‘smart’ cards and subsidy for both kerosene and LPG for the poorer sections.

To make the going easy for oil majors, it has sought an increase of Rs 6 per litre for PDS kersosene and Rs 100 in LPG per cylinder.

In the first half of this fiscal, the total burden borne by the government and the downstream companies worked out to Rs 14.12 per litre for kerosene and Rs 131.61 per cylinder in the case of LPG.

Thus, even with the proposed price hikes, the cost of subsidy to the exchequer and the under-recoveries of oil majors will be large and slated to rise if the crude prices firm up.

The report has rightly stated that the present policy is unsustainable but has failed to address the problem in its totality. In the political milieu, its modest suggestions may not find favour with the government.

Somehow, the tendency to insulate the consumer from the global movements in crude prices has persisted for too long and this colours our approach to a rational pricing policy for petroleum products.

While the impact on the fisc and the oil companies is indeed onerous and rising over the years, with the artificially cheap availability of the four basic items, there is little motivation for the people to conserve their use, even as our dependence on imports of crude is sizeable and growing.

Now, of late, in a financial wizardry of sorts, oil bond issues have lightened the fiscal burden while coming to the rescue of oil companies as a compromise. Thus, the bus was missed several times.

The right time to embark upon sweeping changes was in the early nineties when economic reforms were ushered in.

That opportunity was lost - and despite the many sensible policy changes advocated by several committees thereafter - we are now in a worse predicament than ever before when it comes to the oil economy.

Kirit Parikh’s findings may not be exactly path-breaking but the Centre may find even this report a bitter pill to swallow.

What is likely is a half-hearted response that retains the salient features of the old system with some token price increases.
Like the Bourbons, we may thus end up learning nothing and forgetting nothing.