There is currently discussion on abandoning the administered price mechanism in petro-products in India. The last time this was considered was in January this year. The motives for such contemplation by the government then and now are quite different. Global crude prices today are at a level where retail prices will have to be raised should there be price deregulation now; then, retail prices would have been lowered.

Price increases never have support or sympathy in a democracy. That in itself doesn’t make them wrong. Ending the era of subsidised energy is in the long-term interests of the nation.

In early 2009, the price of crude was in the region of $40 a barrel, and the country and many states were looking at having to face their electorates within the next quarter. Abandoning the administered price mechanism at that time would have meant a drop in retail prices that could have helped the ruling party at the polls. Good sense prevailed and the move was shelved.

It made good sense then because lulling citizens into a false sense of security by lowering prices would have led to mistaken decisions by them. It would have promoted the belief that energy is more abundant, whereas nothing can be further from the truth.

Today, the price of crude has since gone up to $66-plus a barrel. That’s a whopping 65 per cent increase in less than half a year. The motive this time round is apparently that the government is anxious that global prices are stiffening and does not want to find them where they were in 2005-2008, when prices moved from $55 to $147, the last $70-increase coming suddenly.

... contd.