Playing with fuel

The cost of crude imports has eased of late.

Wednesday’s sharpest-ever hike in the retail price of petrol—ranging from Rs 7.50 to Rs 8.28, depending on the VAT rates imposed on the fuel by different states—has no justification. An attempt had been made to create an impression over the preceding few days that a big increase in price would be inevitable in the face of alarming fall of the rupee vis-a-vis the US dollar. But it is not just the exchange rate that determines the price. Equally, if not more important, is the price of imported crude. The prevailing cost of imported crude tells a different story. While the rupee is losing ground in an unprecedented way over the last few weeks, the cost of crude imports has eased during the same period. The net result of the interplay of these two factors is that the cost of importing crude in rupee terms has actually decreased significantly over the last six to seven weeks. On an average, the cost of importing crude has increased just by about 7 per cent since the last petrol price hike in November last year. If at all the Oil Marketing Companies (OMCs) had any case for significantly hiking the price, it was in mid-March, but the cost of crude imports has eased since.

Two years ago, the UPA government had removed petrol pricing from its control and granted autonomy to the OMCs to revise the retail petrol price every fortnight on the basis of the prevailing cost of crude imports. But in reality, the government continues to prevail upon these OMCs to informally seek its nod before going ahead with its proposals for any revision. The ruling coalition did not allow the companies to hike the price in February-March because its partners were fighting crucial Assembly elections. So price revision decisions continue to be dictated by political considerations.

The steep increase, it appears, is intended to help the OMCs and the government. The OMCs have reported that they lose around Rs 510 crore a day because of subsidised sale of diesel, kerosene and domestic LPG. And, the government is already worried about falling revenue collection early in the current fiscal. What better way to address the twin problems than pass the burden on to the hapless petrol consumers? It is completely unreasonable. The government should not only lessen the blow on the common man, but use the occasion to bring down the high levels of taxation, which have distorted the fuel price in the country.