JOIN USFor an economy under siege on multiple fronts – a manufacturing sector hobbling under high operational costs, fiscal deficit growing sideways, high headline inflation and associated miseries, the move to de facto deregulate diesel prices comes closest to the aphoristic baby being thrown out with the bathwater.
The decision to deregulate diesel prices has been guided by the government’s obligation to aid oil marketing companies (OMCs) in trimming their ‘under-recoveries’ which by official estimates are Rs 380-390 crore everyday – or Rs 9.60 per litre of diesel alone. Allowing OMCs to decide diesel prices will fan inflationary tailwinds. For, while OMCs have been authorised to effect diesel price corrections periodically, this partial decontrol of prices is essentially a way of making the taxpayer pay for the government’s messy subsidy scheme for diesel.
Core industries like coal, defence and shipping and public service providers like Railways and transport corporations, which should ideally be beneficiaries of diesel subsidies, have rarely benefited from it. Instead, the subsidies fostered a perverse subsistence economy, built on opportunistic consumption of diesel by those who could afford fancy fuel-guzzling cars and snazzy multi-utility vehicles. The hike clearly puts the onus of bankrolling the inefficiencies of the diesel production, downstream and distribution economies on the taxpayer, not to mention the lower income groups who will be worst hit. It will have a cascading effect on every average Indian – in ways which dry inflation statistics or economic indices released by the government cannot fully capture.
The cap on subsidised cooking gas cylinders being raised to nine will not afford much relief this fiscal, while the Rs 0.25 per litre petrol price slash is not enough to tide over extant demand-supply mismatches. Domestic LPG under-recoveries are currently Rs 490.50 per cylinder; under-recoveries in just the first six months of 2012-13 already constitute 62 per cent of total under-recoveries in 2011-2012. Indeed, this called for drastic action, though the cracks in the deregulation principle show through. Petroleum minister Veerappa Moily’s agenda of waking up the deregulation lion without inviting it to taste blood is near-sighted because he expects OMCs to exercise restraint while linking diesel prices to the market. The proposal to implement Rs 1 per litre hikes every month incentivises the sorry performance of Indian OMCs, and will boost under-recoveries, besides aggravating the fiscal deficit.