New Delhi: The Economic Survey 2009 has called for ambitious reforms in the energy sector, including deregulation of petrol and diesel prices and limiting the supply of subsidized cooking gas to consumers.
As long as domestic prices remain below import costs, demand will expand, the survey said. That’s because state-owned oil marketing companies such as Indian Oil Corp. Ltd (IOC), Bharat Petroleum Ltd and Hindustan Petroleum Corp. Ltd are forced to sell fuel at prices set by the government.
The oil firms had a revenue loss of Rs1.03 trillion in fiscal 2009 on account of selling fuel below cost. Of that, Rs5,181 crore, Rs52,286 crore and Rs17,600 crore loss was on account of petrol, diesel and cooking gas sales, respectively.
Costlier fuel: A Hindustan Petroleum petrol pump at Faridabad, Haryana. Effective from Thursday, the government raised prices of petrol and diesel, seeking to reduce the burden on the oil marketing firms. Rajkumar / Mint
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The survey was released a day after the government raised petrol and diesel prices, seeking to reduce the burden on the oil marketing firms after the price of crude rose to an eight-month high, doubling from around $34 (Rs1,625 today) a barrel in February. Still, crude is way below the July 2008 record of $147 a barrel.
“As the low prices of oil has provided a temporary window for costless decontrol of petrol and diesel, this window must be utilized at the earliest,” the survey said. It also suggested the development of a policy response system and a financial buffer for use when diesel prices rise above the crude oil equivalent price of $80.
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Murli Deora, Union petroleum petroleum minister, declined to comment on the suggestions made in the survey, but said, “We are looking at it (deregulation) as an option and are working on it.”
“Deregulation is one of the options which is being considered,” said another minister in the United Progressive Alliance (UPA) government, who did not want to be identified because of the sensitive nature of the issue.
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The Congress party-led UPA won a second term in office in the last general election, forming a government without requiring the support of the Left that had stalled economic reforms during its first stint.
“This is the right time for the government to take reform measures as there were constraints earlier,” said Monish Chatrath, leader (national markets), at consultancy Grant Thornton India.
India imports three-fourths of its oil needs. The average crude price for the last financial year was $83.57 per barrel. India’s refiners continue to lose Rs2 on a litre of petrol and Rs1.62 on a litre of diesel, according to the government.
Freeing fuel prices from government control would be a tough task, given political resistance to such a move. The increase in fuel prices on Wednesday triggered fierce criticism by opposition parties.
S. Ramachandran Pillai, politburo member of the Communist Party of India (Marxist), said it will oppose any move to decontrol fuel prices.
The survey also pointed to the country’s failure to meet the electricity generation growth target of 9.1% in the last fiscal year. Power generation increased by only 2.7% on account of delays in material supply, workforce shortages, contractual disputes and other reasons.
India failed to achieve a reduced power generation target of 7,530MW in 2008-09 by 54%. While coal output grew 7.9% to 493.20 million tonnes (mt), India’s dependence on imported coal increased from about 10.2mt in 2007-08 to about 16mt in 2008-09.
Graphics by Sandeep Bhatnagar / Mint