Comment

Having landed the country in a right royal mess on the oil front, what can one do now to retrieve the situation? What can the government do that will not immediately lead to street riots? Suggestions to raise petrol and diesel prices by Rs10-15 a litre are unlikely to be implemented by a government that’s scared of its own shadow. Second-best options will thus be the order of the day.

But the good need not always be the enemy of the best, and well thought out second-best options are worth considering.

The first thing one should do is correct the mistakes of the past. The biggest mistake — which is what landed us in the mess in first place — was to treat kerosene and liquefied petroleum gas (cooking gas) as sacrosanct. They are not.

No, I am not suggesting any drastic changes here. But a key objective is to get people to realise that even in these sensitive commodities prices cannot be held static forever — though they may continue to be subsidised. A good way to begin is to move kerosene prices up by a very tiny 10 paise a litre, maybe once in three months. It’s tiny enough to not matter much, but noticeable enough to give people a sense of movement in prices. Ditto for cooking gas, where a Rs5 change every quarter would send the same message without causing a riot. If it helps, the change can be implemented every quarter without making a long-term commitment on this.

Simultaneously, it would be a great idea to convert the kerosene subsidy into cash — after doing a pilot project. Thus, if the full-market price of kerosene was Rs30, and the subsidised price was Rs10, those eligible for the subsidy would be given Rs20 in cash through their bank accounts. Three purposes would be achieved through this method: (a) one can buy kerosene anywhere and not merely at the ration shop, thus saving poor people time and hassle; (b) there would be no blackmarketing or adulteration; and (c) the user would get to know the real price of kerosene.
When it comes to LPG, which is largely a middle class fuel, cash subsidies may not be warranted. But dual pricing can be tried out. One way would be to stop new connections at the old rate and give out new ones only at market prices. As for old connections, the subsidised rate can be restricted to one cylinder a month; for the next one ordered within 30 days, the price should be the market rate. Nobody is going to be happy with this arrangement, but the middle class is not going to riot over it.

This brings us to the big products, petrol and diesel. Let’s take the easier one: petrol. I don’t see any reason why car-owners should be subsidised anywhere, and petrol prices should be deregulated immediately. If this means raising prices to Rs60-65 a litre, so be it.

Diesel is the real problem area. It is the fuel that can send inflation soaring, and in places that hurt politically. A diesel price hike always quickly feeds through to the wholesale prices index, causing widespread havoc. A steep increase in diesel prices is thus ruled out anytime soon.

However, a beginning can be made in areas that are unnecessarily bloating the diesel bill. Take cars. Thanks to the policy of mollycoddling diesel users, more and more people are switching to diesel cars. This should be eliminated immediately. A beginning can be made in urban areas, where diesel pumps can charge market prices from car-owners. Trucks, commercial vehicles and buses can be asked to fuel up at special pumps that charge lower prices. Or else they can tank up outside the city.

Once again, this is not going to be hugely popular with car or truck owners, but it would do the least damage to the economy even while weaning cars away from diesel. Messy situations sometimes call for messy solutions.
Email: r_jagannathan@dnaindia.net