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Corporate Jul 13, 2012

Will govt miss the bus again on diesel price hike?

By Blog

By R Jagannathan

The word is that a diesel price hike is coming after the presidential poll on 19 July. And also, possibly, in cooking gas and kerosene.

But no one's sure. It could even happen after the vice-presidential poll, which means 7 August. One hope it doesn't end up as a hoax, a joke.

While the entry of Manmohan Singh into the finance ministry is supposed to speed up a decision on fuel prices, these decisions are normally taken through an Empowered Group of Ministers (eGoM), but petroleum has not had an eGoM since Pranab Mukherjee left the ministry to campaign for the presidency.

Rabonita/Flickr

This eGoM has not been reconstituted, and under Mukherjee it has naysayers like Trinamool Congress as members on it. A decision on a reconstituted eGoM will probably give us a clue on when the changes are to happen.

But the time is running out. The best time to decide on raising diesel prices or even partially deregulating it is when global prices are down, but they seem to be rising again.

According to the Petroleum Planning and Analysis Cell, which comes under the petroleum ministry, the Indian crude basket now costs $5 more per barrel compared to the second half of June.

The prices have moved up from $92.99 during 16-30 June to $97.46 as on 12 July, and even though the rupee actually strengthened from Rs 56.49 to the dollar to Rs 55.70, the final rupee cost of oil went up from Rs 5,201.60 to Rs 5,458.04.

Daily losses of the oil marketing companies on diesel, LPG and kerosene subsidies now add up to Rs 355 crore a day.

With every passing day, the losses only add up. Waiting for one election after another to end - first UP, and now presidential election, and maybe, the VP one as well, means the government would have missed opportunities regularly to correct the petroleum subsidy scheme.

Worse, from a political standpoint, price increase look more justified when global prices are high. If they fall, the Congress' opponents will wonder why prices are being raised when global prices are falling.

June-end would have been ideal from the point of view of price index management since diesel prices were last raised in June 2011. Reason: a price hike in the same month as the previous hike reduces the price index impact due to the higher base last year.

But this opportunity too has been missed.

The PM should get a move on and not keep waiting for India's endless election calendar to exhaust itself.

by Blog

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