Grave Consequences If Petroleum Pricing Left To Markets

If the government puts its stamp of approval on the recommendations of the Kirit Parekh Committee, the prices of petrol, diesel, kerosene, and cooking gas would increase overnight in the country. It is estimated that petrol price would go up by Rs. 3per liter, diesel by Rs. 3 to 4, kerosene by Rs. 6 per liter, and a cooking gas cylinder would cost Rs. 100 more. This hike would be painful for the middle-class, and especially for poor people who cook on kerosene stove, but they would have to be prepared for even more painful things in the coming days.

Parekh Committee Recommendations
The biggest recommendation of the Parekh Committee is that instead of leaving the task of deciding petrol and diesel prices on the government like now, it has recommended leaving it to the Oil Marketing Companies (OMC). If that happens, and if the crude oil currently being imported at $75 per barrel begins to be imported at $146 per barrel, as was the case one-and-half years ago, petrol would sell at Rs100 per liter in India. Some feel that the United Progressive Alliance Government would not take the suicidal path in this manner and the Congress party leadership would exert pressure on it to reject the Parekh Committee recommendations.
But this matter is not so simple. By selling petroleum products cheaper than the cost price, Indian Oil, Hindustan Petroleum, and Bharat Petroleum are currently in the red by Rs. 450-billion, to compensate which the government has only been able to issue them oil bonds worth Rs.120-billion. In this situation, there are very limited options before the government. If the government does not want the three OMCs to go bankrupt, then the government would either have to issue new oil bonds and would have to be prepared to further increase its estimated budgetary deficit of 5.5-percent, or would have to allow these companies to extract a heavy price from consumers for petrol, diesel, kerosene, and cooking gas.

Role of Oil Marketing Companies
There is some scope for bringing it down a little, but that is also very limited. Of course, the government could certainly be given the advice that if it increases the role of Oil Marketing Companies in fixing prices of petroleum products, it should make some reduction in the 60 percent levy in form of different taxes on these prices.
If tax on petroleum products in the United States is not more than 19-percent, in India too, it should not be more than 40-percent. The current system of deciding petrol and diesel prices cannot be continued for long, but handing it over completely to the Oil Marketing Companies would not only break the back of the common man, but also of the entire economy that is moaning under inflation. In this situation, the government would have to find some middle-path and also change its belief about considering petroleum products as the easiest way of filling up government coffers.