The prices of petrol (aka gasoline) and diesel have almost always been a pain for the Indian consumer as well as the Indian politician. For consumers rising oil prices represent an obvious dent in the pocket and for the politician it can mean either winning or losing popularity amongst the masses.
But besides these two groups of people there is another sufferer. Oil marketing companies like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) are the biggest losers in terms of money when it comes to oil prices. Oil prices in India are fixed by the Central Government and on many occassions these OMCs (Oil Marketing Companies) are forced to sell petrol and diesel way below their cost price.
This results in them bleeding profusely in financial terms as they incur losses of tens of crores (1 crore = 10 million) of rupess everyday. This is ultimately a loss that has to be borne by the exchequer.
The obvious solution to this problem would be to deregulate oil prices and thus link the prices of petrol, diesel and other ancillary petroleum products to the price of crude oil in the international market. But this again would be a major problem for consumers and politicians. If international prices become too high and are thus reflected in the prices of petrol and diesel the consumer would have to pay very large amounts for obtaining fuel. Higher prices of petrol and diesel would also be a hindrance to industrial development which is already slowing down due to the international financial crisis. Higher oil prices would also get politcians into trouble as they would become very unpopular among the consumers as well as industry.
A middle path to this problem which would be fair to consumers, industry, politicians and OMCs would be to partially deregulate the oil prices up till a certain limit. For example, the OMCs should be given to fix the prices of petrol and diesel (which would give them an opportunity to make some profits for a change) up until the price of crude oil reaches somewhere in the range of $80-$85. If the prices of crude go above say $85 then the government should kick in and put a cap on the prices of petrol and diesel and thus give the consumer and industry some relief from very high prices.
Besides this model of de-regulation the OMCs should also be allowed to be exempted from paying of duties like excise and octroi when international crude prices cross a certain threshold. This would help bring their costs down and thus minimize their losses.
Other related measures to aid OMCs should be to allow petrol pumps to charge some sort of extra service tax or surcharge for expensive luxury cars.
The measure discussed above do sound far fetched in some cases but are very necessary to implement in the near future as the government does not have money to throw around to help the OMCs. The fiscal deficit has risen to a high of more than 5.5% of GDP (thanks to the two fiscal stimulus packages). The real deficit hovers at around more than 7% which is extremely unhealthy.
It has been reported that the petroleum ministry is working on restructuring the current methods of fixing oil prices.
The only thing to do un till then is to wait and watch
Mitul Choksi
20 June 2009
8:36 AM Indian Standard Time
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