Upward & onward

One good thing came out of the Greek crisis that seized the world markets over the past week: the price of petroleum,which had seemed to be heading inexorably upward,plateaued. But Europe seems to have decided to bail itself out,and while this is good news for international economic stability,it means that oil futures are heading through the roof again,with investors betting that the price of oil will head back up towards $80 and perhaps eventually $100 a barrel. And that has definite repercussions for Indian policy-makers and not so pleasant ones either. Because India has for too long avoided taking the necessary steps to liberalise oil pricing,to pass international prices on to the actual consumers of petrol products,the thought of pricier oil this summer has us sweating.

It would be difficult to find an informed voice in government that would not agree with the proposition that the current system,in which the exchequer subsidises oil,is unsustainable. It is an environmental disaster; artificially low prices wont help us adjust to a future with scarcer oil. It creates an unpluggable hole in the Centres already dangerously high fiscal deficit: the oil ministry has just asked the finance ministry for Rs 19,621 crore to make up for the difference between how much kerosene and gas costs,and how much consumers pay for it quaintly called under-recoveries,when a more honest word is losses. And it shoves a big burden off onto oil marketing companies the Oil and Natural Gas Corporation and Oil India Ltd are shelling out Rs 14,430 crore because of under-recoveries on petrol and diesel. ONGC and OIL sell to the public sector downstream majors IOC,HPCL,BPCL which have been forced to absorb Rs 80,000 crore losses since 2004-05; this is in spite of massive,but partial,compensation from the finance ministry,Rs 14,000 crore this year alone. Forcing publicly floated PSUs to share some of the burden of a government decision is the same as any majority shareholder that bullies his minority shareholders into doing something thats not in their interest.

We now have a date for when the empowered group of ministers thats considering oil price deregulation is due to meet. They know what they have to do: follow the expert Parekh Committee reports recommendations,freeing the price of petrol and diesel and raising that for kerosene and cooking gas. Otherwise,as international prices go up further,we might be almost Rs 100,000 crore in the red before the summers out.