About two years ago, I had written a three part series of posts on Petroleum Prices. You can read them here --> Fuel Price Imbroglio-1, here --> Fuel Price Imbroglio-2 and here --> Fuel Price Imbroglio-3 .
Situation on the Petroleum Prices front has not improved, but rather taken a turn for the worse. Two years of mismanagement of sector, first due to the elections last year and then a lack of political will and imagination to tackle the issue has seen common man suffering, petroleum companies making losses apart from India looking down the barrel on fuel adequacy issues.I, for one, am fully in favour of deregulating the Petroleum Prices to bring it on level with international prices, but with a caveat. When international oil prices drop, corresponding drop should be there in the domestic oil prices. Whether this will happen in an Indian deregulated economy is a moot point.
Why do I argue for deregulation of Oil Prices? When we opt for administered pricing, we artificially keep the prices down. But this means Government subsidising the Petroleum Companies in the long run. Where does this subsidy come from? Through higher taxes imposed on the common man. Ultimately the common man pays for the petroleum prices, either directly or indirectly. Let the users bear the cost directly. It is true that prices will go up in the short term, but then the users will find more efficient means of reducing the waste by going for more fuel efficient equipments, that shall ultimately lead to better energy output per unit of fuel. And the oil companies, which have sustained their inefficiency behind administered prices, will have no place to hide. They can offer no further excuse and run to the Government to bail them out. This shall lead to increased productivity in the sector, which can be nothing but good news for the Country.
An emerging economy like India, aiming for a 10% GDP growth, cannot afford to curb fuel consumption if it wants to achieve its targetted growth. The pertoleum pricing structure is such that the Government taxes total upto 50% of the selling price, i.e: if Petrol Cost Rs 50 per litre, the taxes accruing to the government is approximately Rs 25-26. Everytime the petroleum prices go up, the Finance Ministry is happy, for it brings in additional revenue that can be splurged on non productive sectors. It is high time the taxes on petroleum products are rationalized and reduced to a maximum of 30% as against 100% that is prevalent today. This would mean a base price of Rs 25 and a tax of Rs 7.50 making it Rs 32.50 for petrol, which is what it should be. Government needs to find other means to bridge the revenue deficit. For a starter, instead of concentrating on raising more revenue, they can think of reducing non plan expenditure drastically. Let us start with cutting the convoys that accompany the ministers, and stop subsidising their wasteful living.
There is no doubt that the poor need to be protected. Fuel coupons can be given to BPL families. It is high time we revisited our top down subsidy structure and replace it with the direct-to-customer subsidy structure. Let the BPL consumer decide where, when and how he/she will use the subsidy coupons, be it fuel coupon, food coupon or education coupon (Read my blog on the subject of coupons here)
But above all, we need a national program on reducing wastage of precious fuel. Let us invest in better roads, better and fuel efficient vehicles, generators, low cost highly efficient kerosene lamps, stoves etc. Kerosene is consumed by BPL families mostly for lighting purpose. We can reduce the consumption by going for 100% electrification (Kerala has already achieved 100% electrification) of households. A simple way of reducing waste will be for us to enforce traffic rules strictly and remove all the checkposts. Enforcement of traffic rules will pave way for free flow of traffic and, ensuring Contractors pave the road as per specification would result pot-hole free roads, all of which goes a long way in saving fuel.
But then that is asking for the moon, isn't it?
