Were the government to now review this assurance and regulate the price it would be in breach of the spirit of the contract if not the letter. It would also call into question the government’s commitment to contract sanctity and drive an avoidable nail into its further efforts to attract private risk capital into petroleum exploration. The timing would be particularly unpropitious as after so many years of indifference, the international petroleum companies including the majors are now seriously interested in Indian geology.

Finally, price regulation has an awful track record. All past efforts at controlling petroleum products have failed to deliver the intended result. The subsidy on kerosene was supposed to be for the poor. It ended up providing the incentive for dealers to spike it into diesel. The cap on domestic LPG was also for the underprivileged. The benefits have accrued disproportionately to the middle class and it has encouraged companies to divert sales from the ‘unprofitable’ domestic segment into the market-based commercial segment. The delegation of discretionary authority to allocate a scarce and ‘cheap’ commodity was premised on the assumption that officials would allocate to secure the greatest good for the greatest number. In fact, it’s simply encouraged cronyism and adhocism.

An irony of economic change is that often those who otherwise depend on the market for growth will adopt a generically anti-market position to defend their privileged access. The potential customers of gas have often been the loudest votaries of deregulation and market economics. But in this case they are vigorously lobbying for a handout. The government must not lose sight of this irony. They must not compound the systemic hurdles that have enabled only ‘opportunistic reforms’ by creating avoidable potholes on the road to economic efficiency.

... contd.