Friday, January 30, 2009

Fuel Prices Cut

The Union Government has slashed petrol prices by Rs. 5 a litre and diesel by Rs. 2 per litre. The price of cooking gas, which was left untouched in the revision made on December 5, 2008, has been reduced by Rs. 25 a cylinder. The reduction will help further ease inflationary pressures and benefit common people.
With this cut, petrol in Delhi will come down to Rs. 40.62 a litre and diesel Rs. 30.86 per litre. In Chennai, the price of petrol will cost Rs. 44.66 and diesel Rs. 32.98; in Kolkata petrol will cost Rs. 42 and diesel Rs.31.74; and Mumbai petrol will cost Rs. 44.80 and diesel Rs.34.69 per litre.
An LPG cylinder will cost Rs.279.70 in Delhi, down from Rs. 304.70. In Chennai, the new price will be Rs. 314.60; in Kolkata, Rs. 327.05; and in Mumbai, the price of a cylinder will be
Rs. 324.50.
Fall in International Oil Prices
The Government decided to reduce petrol, diesel and LPG prices to pass on the benefit of softening international oil prices to consumers. While State-run oil companies were making a neat Rs.9.86 a litre profit on petrol before this price reduction and Rs. 3.48 on every litre of diesel, they were still losing Rs. 32.97 per LPG cylinder and Rs.12.16 per litre of kerosene. The reduction could have been sharper but for the losses on LPG and kerosene.
The successive reductions were not unexpected given the sharp fall in the international oil prices to less than a third of their peak level of around $147 a barrel touched in June-July 2008. The price of India’s average crude basket, currently around $44 a barrel, has come a long way from its unprecedented high of above $140 that prevailed just seven months ago. With the petroleum prices hovering just above $40, the public sector companies have not been complaining about under-recoveries, a term loosely interpreted as revenue loss arising out of selling products below their cost. After incurring combined losses of Rs. 14,431 crore during the first half of the year, they have now bounced back, reporting a positive margin of Rs. 20-25 crore per day.
What has not happened is the deregulation of the oil prices. There is almost unanimity at the top level about linking the oil prices to market rates. The petroleum Minister, the Planning Commission and the Prime Minister, who holds the Finance portfolio, all favour this and their recent utterances to this effect had revived hopes. However, problems would arise when the oil prices shoot up and subsidy may have to be restored.
Relief to Consumers
The relief to the oil and LPG consumers before the 2009 general elections may stand the ruling coalition in good stead. However, the Government must ensure that the benefit percolates to the grassroots level. Public and private transport fares, once raised, usually do not come down in tandem with the oil price declines. Some State Governments like that of Punjab were quick to raise the taxes on oil that they cut when the global prices had skyrocketed in 2008.
Nonetheless, the LPG price cut was avoidable. Accruing losses on this score for oil Public Sector Undertakings (PSUs) would offset recent gains thanks to falling oil prices. Also, Government representatives recently hinted at deregulation of fuel pricing. But the UPA Government seems to be leaving hard decisions on this issue to the next Government. However, there is no guarantee oil prices will remain in today’s comfort zone in future when—and if—the powers that be decide to free up fuel pricing.
In August 2008, when the oil prices were high, B K Chaturvedi Committee had made far-reaching recommendations, which if implemented would pave the way for an equitable methodology of pricing petroleum products. The report has greater relevance now than when it was presented and, one hopes, the Government will draw up an action plan based on its recommendations.
The Centre had sharply reduced or scrapped the Customs duty on petroleum products to cushion the impact of high prices on the consumer. To fight economic slowdown it is necessary to shore up demand and ensure more cash in the hands of consumers. This can be done partly by cutting taxes and commodity prices.

No comments: