Special Reports

Year-ender reviews: Petrol Prices, Reforms & Inflation; The Road Ahead

Gurdeep Singh
Jan 2011
Page 1 of 10
With the sword of de-regulation of diesel prices hanging like a Democles sword, the year 2010 will go down in the history of Independent India for the government having finally taken a plunge to decontrol the prices of petrol at a high political risk to itself, perhaps paradoxically in a year where the threat of inflation reached unprecedented levels and loomed all throughout.

The compulsions of the government in doing so are all too well known-- the high international crude prices leading to phenomenally high under recoveries of Oil Marketing Companies (OMCs), which was bleeding them white. The government used Committee reports to must its case, the latest one in this league being the Kirit Parikh Committee—which favoured complete de-regulation of the Energy Sector sans a few items for the poor like kerosene oil, but the Opposition failed to see this logic with Parliament being rocked for several days on the issue.

It led to 'Bandhs' and other forms of social unrest with the most notable being the Mumbai Bandh where all Opposition parties came together whatever the political hue, with political pundits prophesying that the ''disastrous'' decision has isolated the middle class, one which formed the base for ushering in the consumerist culture.

The decision, however, found favour with the international investing community, taking it as a signal that India will tread the road to liberalisation whatever be the political consequences. Economists read a different meaning in it. The stiff political and social resistance would put blocks in the way of rapid integration of the Indian economy with the global economy. India would thus remain the famed Tortoise or an elephant and not a tiger which had been caged by the forces of economic control.

India imports about 80 per cent of crude oil, notwithstanding the fact that initiatives relating to oil exploration have been stepped up considerably. In the wake of rising under-recoveries of OMCs, the Empowered-Group of Ministers on June 26 decided to go ahead with de-regulation in a caliberated manner, a partial implementation of the Kirit Parikh Committee Report. In a cautious manner, the EGoM, headed by Finance Minister Pranab Mukherjee, decided to decontrol petrol prices, while only taking an in-principle decision to deregulate diesel prices.

All at one go would be politically unwise, political sagacity suggesting that it was better to taste the water first. It only carried out a marginal hike in the prices of LPG and kerosene, for a government straddled with high fiscal deficit was compelled to bring down the subsidy burden. The government also decided on a periodic revision of petrol prices based on the fluctuation in international crude oil prices, which is likely to happen every now and then.
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2 Comments >>
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24 Nov 2012 (22:18:26)
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Cady
23 Oct 2011 (08:32:33)
Knckeod my socks off with knowledge!