However, life is still a mess. Oil marketing companies lose money. What else to expect if prices are lower than costs, the option of non-marketing a non-existent one? Let’s issue oil bonds. In 2006-07, this cost 0.5 per cent of GDP and in 2007-08, may account for 1 per cent. For 2007-08, there is a 2 per cent figure floating around, but that includes food, fertiliser and power sector subsidies, not oil bonds alone. There are three problems with oil bonds. First, it is a commercially bad idea, because future debt (bonds) is used to fund present expenses and public financial institutions and banks will probably be forced to artificially subscribe to these bonds. This distorts resource allocation, across sectors and over time. Second, fiscal deficit figures become less transparent, since such off-budget items are not included in deficit calculations and make reduction targets seem more rosy than they are. Third, there is the question of how the deficit is financed. Does government expenditure necessarily switch from more productive sectors? Because investment signals are distorted, is there a similar switch? Or because of what is done on revenue or because of behaviour of banks and financial institutions, is there a switch from more productive private investments to less productive public expenditure?

Given the scenario, that is how a growth-reduction argument should be couched, but that’s not how it is expressed. To quote again from the Approach Paper, “However, all such estimates have a large margin of error. The important point is that even these simulations show that with appropriate oil pricing policies, increased exports and appropriate fiscal and monetary policies, the adverse impact of high oil prices on GDP growth can be substantially moderated in the medium term. They will have an impact on affordable levels of consumption but they need not have as sharp an impact on GDP growth.” That’s very honest and makes me a confirmed sceptic about growth reduction.

... contd.