The jury is still out on whether last weeks hike in the prices of the common mans fuels was too harsh, but theres one thing experts and industry circles can say with certainty: oil sector reforms have gone for a six.
The latest decision only strengthens the argument that the hikes are too little, because they are a year too late. Global crude prices have climbed 155 per cent in 1999. With it, the oil pool deficit-which lives because the government is yet to dismantle the administered price mechanism (AMP) even a decade after reforms started-to Rs 11,630 crore. The hikes have cut the deficit by only 45 per cent to Rs 6,300 crore. The deficit will touch Rs 14,000 crore by the end of 2000-01 unless crude prices crash or subsidies are wiped out.
By allowing aviation turbine fuel (ATF) and diesel, which are supposed to be on import price parity, to slip into subsidy mode, the government has reversed oil sector reforms. The latest hike wipes out ATF subsidy but, says petroleum minister Ram Naik, the subsidy of Rs 2 on diesel will stay for at least four more months as it doesnt want to hurt the farmers, transporters and commuters.
This is perverse economic logic but sound political judgement, especially by a coalition government thats facing flak for the hike from its own partymen as well as major allies like Chandrababu Naidus TDP and the railway ministers Trinamul Congress. Neither Naidu nor Mamata Banerjee were present in the NDA meeting that discussed the hike but had aired their displeasure earlier. The Centre of course is taking credit for the fact that it pushed through a 125 per cent hike in kerosene prices in the face of such "stiff opposition".
But the fact is the decision reflects nothing but crisis management. Which has been, admittedly, successful. Especially with the vision report for the hydrocarbon sector pushed through hastily to calm allies. Even shrill carpers like Mamata have veered from the steepness of the hike to why the retail price increase should be the highest in Calcutta, her political constituency. Kerosene will cost Rs 5.87 a litre in Calcutta against Rs 5.46 in Delhi and LPG Rs 222 a cylinder compared to Rs 197 due to high sales taxes. The TDP, which has issued a protest note, is worried-because, the state runs the heavily subsidised Deepam scheme that provides LPG connections to one lakh rural women whose future is now dark.
Ironically, the most vocal protester is the TDP which was part of the United Front government that drew up the schedule of oil sector reforms and AMP dismantling mechanism in 1996. As per which kerosene and LPG subsidies should have been cut by a third this year. It has been done for kerosene but curiously not LPG, ostensibly the urban middle class fuel and for which the protests are negligible. The uncovered LPG subsidy is still Rs 132, which means the real consumer price for a cylinder should be about Rs 300. Why then did the government not effect a bigger price hike for LPG if the idea was to protect the poor?
Even that intention is suspect. Oil ministry sources themselves point out how 90 per cent of the kerosene is used mainly to adulterate diesel. And how low prices have whetted the appetite for diesel-the most polluting fuel-as an electric power substitute. Yet, the government pays out a subsidy of Rs 8,120 crore on pds kerosene and Rs 4,730 crore on domestic LPG.
Not welfare interests but dirty political games force the Indian consumer to pay much more for oil products than they ideally should. India spends close to Rs 60,000 crore importing crude and petro products. The Centre compensates the importing national oil companies through the oil pool account and pays an interest of 10. 5 per cent on the overall burden. The more a price hike is delayed, the more the interest charge on the deficit. Result: steeper hikes.
India still provides the cheapest fuel in the region. LPG costs Rs 17.19 a kg in Bangladesh, Rs 16 in Pakistan, and post-hike, Rs 13.50 in India. Kerosene costs Rs 5.5 a litre compared to Rs 9.5 in Pakistan. How long can the government sustain this huge deficit which is actually a reflection on the state of the central exchequer? Why then, ask petroleum industry sources, doesnt the Centre scrap the AMP, absorb the oil pool deficit in the Union budget, and subsidise it upfront like food and fertiliser? The answer, as they say, is lying in our stars.
