The government has taken an important reform measure by decontrolling the price of diesel.
Diesel is the most used petroleum product and its price has an influence on any commodity that is moved and sold in the country. Deregulation of its price has been on the reform agenda ever since the economic liberalisation process started. The huge disparity between its import price and the price at which it is sold domestically meant that much of it was subsidised. The high subsidy for the consumer created a huge drain of the state’s financial resources, because the oil marketing companies which were forced to sell diesel below its cost were all state-owned. Petroleum subsidies have been the single most important reason for the fiscal and current deficits which have badly hurt the country’s macro-economic condition. With deregulation of petrol and diesel prices, a good part of these subsidies will be extinguished.
This was the best time to take the decontrol decision because crude prices in the international market have fallen to below $ 85 levels from over $ 100 a few weeks ago. With decontrol, diesel prices have fallen by about Rs 3.50 a litre, and this should have welcome consequences on the prices of most commodities in the coming weeks. The UPA government had actually set the stage for the decontrol by increasing diesel prices by about 50 paise every month from January, 2013.
The government should have the political will to stick to the decision and increase the price when the prices rise in the international market. In fact, the decision to free petrol and diesel of administered prices had been taken as far back as in 2002. But later, the government developed cold feet on it and refrained from implementing it. Diesel price deregulation should continue just as in the case of petrol prices to which consumers have got used now. Full and actual deregulation will however happen only when OMCs compete with one another on prices, and importing rights are further liberalised. Another decision was on the direct transfer of the subsidy on cooking gas to the bank accounts of LPG users.
The re-launch of the direct bank transfer (DBT) scheme without the use of Aadhaar will extend the present plan to reduce subsidies and may lead to a saving of about Rs 10,000 crore. Reform of the LPG subsidy system is a work in progress and governments have gone back and forth on this. Minimising or elimination of subsidy for families which can afford to pay the actual price of LPG gas is the ideal reform but the government may not be able to implement it in the near future.
