Sunday, 20 January, 2013

Oil Pricing Reforms by Stealth - or, is it?

Oil Pricing Reforms by Stealth - or, is it?

Last week saw a sudden attempt at partial deregulation of diesel prices.

Interestingly, the Oil Minister is quoted as saying: "Diesel Prices are NOT de-regulated. However, Oil Marketing Companies are free to introduce minor changes in diesel prices".

People have widely criticised this as an example of "Price decontrol by Stealth". Parties from across the political spectrum have criticised the move. What's noteworthy is that the government is criticised by all and sundry if the government:
  1. don't change oil prices - because the fiscal deficit targets go for a toss
  2. increases prices on a lumpsum basis - because the "Aam Aadmi" will suffer due to such a price shock
  3. proposes notional fixed increases on a periodic basis - because this will imply regular inflationary pressures for the common man
  4. partially decontrols prices by giving the oil marketing companies limited flexibility, as they're trying to do now - because that will be a case of "deregulation by stealth"
  5. deregulates petroleum product pricing totally - because this will be suicidal in a country where millions are already suffering due to huge inflation

I've been trying to figure out as to what the various political parties want the government to do????

Perhaps they should dump PC as finance minister and get hold of someone like PC Sorkar to handle the Finance Ministry - may be some of his magic will help the nation!

In the meantime, here is my prediction of what the minister (and the Oil Marketing Companies) are likely to attempt in the weeks and months to come:

  • Every 15-20 days, increase diesel prices by, say, 50-60 paise per litre.
  • Every 20-25 days, decrease diesel prices by, say, 20-25 paise per litre.
  • Keep doing the above till the diesel prices reach a level where there's NO under-recovery in diesel prices.

I have no information or knowledge as to whether Team Manmohan is indeed trying to do what I've claimed above.

However, I certainly hope that they are planning something along those lines. It will go a long way in managing the fiscal deficit situation!



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