Fuel politics

On paper, State-owned oil marketing firms - Indian Oil Corporation, Hindustan Petroleum Corporation Ltd., and Bharat Petroleum Corporation Ltd. - are free to decide the retail price of petrol and review it every fortnight.

The UPA government authorised them to fix the retail price of petrol last year after freeing it from the so-called administrative price mechanism. In reality, however, the government continues to call the shots. The state-run firms are not allowed to revise retail price if it is not in the best political interests of those in power. Three days ago, the government ensured that these suppliers did not increase petrol price, though they wanted to increase the price by about Rs 2 per litre, essentially to offset the rupee’s fall against the dollar. Though the international price of gasoline (against which domestic petrol prices are benchmarked) are more or less at the same level as at the time of last revision, the rupee has depreciated to about Rs 53 to one US dollar. And thus was the need to revise the prices.

Obviously, the government’s signal to the retailers is guided by considerations of electoral politics. The ruling coalition, in particular the Congress, is giving preference to narrow considerations of its electoral prospects in the forthcoming Assembly elections in UP, Punjab, Uttarakhand, Goa and Manipur over the requirements of sound economics. Last year, with the impending elections in West Bengal the government prevailed upon the oil marketing companies to hold the price line for three months. But once the final round of polling was over in Bengal, the companies went all out to make up for the losses.

Of course, nobody wants frequent fuel price revision. But the fact remains that somebody has to pay for it when the cost of imported crude goes up sharply. This happens by way of the ballooning government’s subsidy bill. The government’s inconsistent stand, going against the recommendations of expert bodies, has hurt the economy badly. The oil firms had ostensibly, at the last review on December 15, decided not to burden the consumers with about Re 1 per litre hike in petrol price needed at that time, as they felt Reserve Bank’s intervention may help arrest the fall in rupee’s value. It is another matter that this also saved the government from facing Opposition protests in Parliament. The government's hidden hand in stopping the petrol price revision now makes a mockery of its policy decision to free petrol pricing and is anti-people in the long run.