Fuel price hike: Optimism beyond

Updated: Jul 14, 2011, 15:48 PM IST

Reema Sharma

The government’s decision to increase the price of diesel by more than Rs 3 per litre, domestic LPG by Rs 50 per cylinder and kerosene by Rs 2 per litre, has come as a big blow to millions of Indians who are already struggling with stubborn inflation.

Though the government is terming the price hike as "very modest and minimal", the common man isn’t sharing the optimism.

Government had hiked the rates of diesel by Rs 3 per litre last week and a week hence rates were again hiked by Rs 0.15 per litre. As per the new revisions, diesel price in Delhi will now cost Rs 41.27 per litre instead of 41.12 per litre. Rates across different cities will vary due to the differential rates of VAT/sales tax.

Narendra Taneja, an expert on the oil, gas and energy sector and South Asia Bureau Chief for the world’s largest oil and gas newspaper, Upstream, talking to Zeebiz.com said, “Whenever you increase the price of diesel, it is bound to have a cascading effect. Ours is a largely diesel driven economy. Trucks, railways, irrigation, industrial townships; the entire chain is heavily dependent upon diesel. So we can’t really escape the magnifying effect propelled by diesel price hike”.

Oil companies have constantly made a hue and cry about the loss in revenue owing to subsidised fuel prices. But the point is: how else is the common man supposed to get relief?

Taneja agreed that despite the price hike, oil companies would end the fiscal with about Rs 1,20,000 crore of revenue loss. “It’s a fact that companies are suffering under-recoveries. Money is required not only for profit but also for expansion. You can’t compare oil companies with other companies. These companies depend upon a lot of fundamentals,” he added.

Can we find solutions in the customs or import duties and the excise duty on crude oil? EGoM decided to abolish the 5 % customs duty on crude and slashed the same on diesel and petrol by 2.5% from 7.5%. The excise duty on diesel was cut from Rs 4.60 per litre to Rs 2 a litre.

Asked whether the hike in diesel price was unavoidable, Taneja said, “The import duty cut is a welcome move. Cut in the excise duty is also a welcome move. But the hike in diesel price could have been avoided. What the government could have instead done was to further cut the excise duty. It could have also cut a lot on the education cess. The last three days have witnessed a lot of volatility in the international oil market. We could have easily done without hiking diesel prices.”

On speculations of deregulating diesel, he said, “Last year the government deregulated petrol. Petrol is a very small account of the total petroleum product mix. And in the sector of petrol, the government has to take the final call. However diesel deregulation is an altogether different affair. Deregulation should be done in such a way that it does not directly hit the lowest strata of society. Other than deregulating diesel, you will also have to allow the oil companies to buy fuel from overseas market. Initially we are bound to feel the jerk, but eventually things will stabilise”.

Apart from all the talk about under-recoveries, speculations of deregulation, contribution of upstream firms, fuel subsidies etc, Taneja suggests other measures which could be better alternatives. “De-politicise the petroleum and natural gas sector, decontrol and deregulate, modernise and reform the sector. Also there has to be complete transparency. It is very important to ascertain where all the revenue earned from oil goes. And finally it is very important to give more and more autonomy to the oil and gas PSUs. Over a period of time a roadmap will have to be charted out and with an iron hand the policies will have to be implemented,” exuded a confident Taneja.

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