Focus back on petro subsidies

The hike, after two rounds of cuts in petrol prices which the NDA government was flagging as one of its solid achievements, appears to have all the more shocked the middle class and economically weaker sections, bringing back the issue of petroleum subsidies and whether everything could be left at the hands of the oil marketing companies (OMCs).

While the government had freed diesel prices in October last year, it had also hiked excise duty on both petrol and diesel at least thrice since mid-November last, notwithstanding the ‘tumbling’ in the price of the crude oil basket which India imports. The price of crude had then nosedived to a celebratory US $58 a barrel from its US $100 plus levels year.

As petrol and diesel price hikes have invariably a cost-push impact on prices of mass-consumed commodities in particular, concerns raised now are whether the complete deregulation of prices of these two in line with fluctuating international prices is good in itself, or whether the state needs to step in to protect the livelihood interests of vulnerable sections of the population including farmers, fisher-folks and burgeoning urban poor.

Thanks to the slide in global crude prices, the provisioning in finance minister Arun Jaitley in his 2015-16 Budget for petroleum products subsidy bill has come down almost by half, to Rs 30,000 crores, from Rs 60,270 crores in the last fiscal. This, analysts had argued provided a cushion for Mr Jaitley to rein in the overall fiscal deficit as a ratio of the GDP. But, as global oil prices begin to fluctuate, the issue is not just about numbers.

“We have to worry about the profitability of the public sector OMCs as much as the need for government to send a signal (with periodic revisions in prices) as crude oil is a scarce resource,” argues noted economist, Dr U. Shankar, former director of the Madras School of Economics (MSE). It is better for India to let its petroleum prices “align with international prices” in the long run, as “we are importing two-thirds of our oil requirement and a ballooning import bill can adversely impact our trade deficit,” he stressed.

The bulk of the petroleum products subsidy by the government now was for LPG and kerosene, he pointed out. “These subsidies should go only to the weaker and poorer sections,” Dr Shankar said.

“There is a case for subsidising mass passenger transport” in the interests of the common man though implementing it is very difficult,” he said. The only way to soften the impact of diesel price hike on commodity prices, is ‘to remove the bottlenecks in the supply chain’ like hoarding, he added.

The concept of ‘total deregulation’ might have to be tweaked a bit by the government, at least with respect to diesel prices, feels Mr. Prasad David, former veteran secretary of the South Indian Chamber of Commerce and Industry. “,” he said. EOM.