Centre ‘never misses an opportunity to miss an opportunity’

The Israeli diplomat, Abba Eban’s celebrated phrase that forms part of the headline to this story, was employed in a totally different context but it captures the essence of what passes for policy in regard to the petroleum industry in India.

On June 7, the empowered group of ministers met and dispersed without taking a decision on freeing the prices of sensitive petroleum products.

On June 14, the inflation numbers for May were released and they indicated that, not only is the headline inflation stubbornly in double-digits but also the fact that the core inflation rate too is steadily creeping up.  Effectively, therefore, the issue of freeing the prices of sensitive products has again been put on the back-burner. Between economic logic and political compulsions, it takes no great effort to deduce which will emerge as the winner.

There are already straws in the wind. When the EGoM meeting was adjourned, the impression that one gathered was it will soon convene to take a decision and reports had suggested that June 17 as the probable date. This deadline is behind us and there is no hint as to when - or if - the new round of talks will materialise.

The government, in the changed price scenario, may have lost the nerve to alter the status quo, however costly it may prove to be to the exchequer, upstream companies and marketing majors. Any increase in fuel prices is certainly inflationary while its cascading effect cannot be under-stated. Politically too, any hike would be dynamite and more than the Opposition, it is the coalition partners, Trinamool Congress and the DMK, are the most vocal.

In retrospect, it is clear that the dithering by the EGoM in its last meeting amounted to yet another opportunity missed in effecting radical reforms in the petroleum sector. It is also tempting to recall the past attempts in this respect and how they led us nowhere. Way back in 1994, the vision document on hydrocarbons spelt out by the Sunderrajan committee had suggested that the oil industry be deregulated at the earliest. Those were the days of the economic reforms and politically there was a consensus for new policy thrusts in many areas including energy. The Centre had dithered then.

This was followed by the Vijay Kelkar committee report in 1995, Rangarajan committer report in 2006, Chaturvedi committee report in 2008 and Kirit Parikh committee report early this year.

Over this span of decade and half, the Admistered Price Mechanism was  partially revoked in 1998 and fully abandoned in 2002. But, this exercise was not carried to its logical conclusion and now, we have the worst of all the worlds.

The sharing formula for under-recoveries by the marketing companies has impacted on the health of the fisc, on upstream companies and the marketing majors themselves. The situation is unsustainable and yet, it seems, we are destined to continue this state of affairs. Critcal inputs were apenty but decision-making had proved elusive.

 What makes the latest bout of inaction all the more indefensible is the fact that the budget has not made any large provision for petroleum subsidies and the firm undertone in crude prices.  It is anybody’s guess what the under-recoveries would be this fiscal as much depends on the movement of the Indian crude basket. What is, however, certain that it will be unconscionably high.

The old formula - upstream companies footing part of the losses on account of auto fuels and government doling out cash subsidy by taking recourse to supplementary demands for grants and marketing companies absorbing the balance - will be persisted with.

The fate of the Kirit Parikh committee’s recommendations will be similar to the many that have preceded them - oblivion.