×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Crude signals, crude accounts

Crude signals, crude accounts
Comment E-mail Print Share
First Published: Mon, Apr 14 2008. 01 34 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Mon, Apr 14 2008. 01 34 AM IST
The price at which Indian refiners buy crude oil has now crossed $104 a barrel, and the average for April has touched $100 — it was at $92 in February. At a time when inflation is the biggest worry, it is worth noting that even the 7.41% level is understated because we continue to suppress the passthrough of the surge in global crude prices.
Illustration: Jayachandran / Mint
It is true that had crude price increases been fully passed through, the rise in domestic prices of petro products would have fuelled inflationary pressures much more. But is such tempering of inflation good for the economy?
After all, crude oil prices are unlikely to let up soon, with growing demand from India and China in particular, even if US demand cools with recession. Just like the escalating debate on India’s policy follies that contributed to the supply crunches in agriculture, it is the right time for genuine introspection on the problem of distorting fuel prices at home.
First and foremost, it is important to close the gap between the true market price for fuels and that being actually charged under government curbs on the state-owned oil marketing companies which dominate the Indian market. Their under-recoveries are likely to touch Rs130,000 crore; the government, in keeping with its policy so far, plans to bear a major part of this burden. It’s done through means which have significant fiscal impact — both overt and covert, the latter (oil bonds) implying a hit on future governments.
It is for purely political reasons that the government has not had the courage to raise fuel pricing to match the oil price surge of about 55% last year, while consumption of petrol and diesel continues to grow — last year saw it rising by far more than the growth in the gross domestic product. This points to poor signals for the market to moderate consumption.
At the same time, Central and state taxes and duties on petrol and diesel together contribute to an average 25-30% of consumer prices. So, the fisc gets dented by direct and indirect subsidies, even as it makes revenues through taxes. The net effect here is not clear, even as the state-owned firms face under- recoveries, part of which get covered through oil bonds — a mere fudging of books.
These problems can only exacerbate with rising oil prices. It is time for the government to get its books in order and provide the right price signals to consumers.
How should petrol and diesel be priced? Write to us at views@livemint.com
Comment E-mail Print Share
First Published: Mon, Apr 14 2008. 01 34 AM IST
More Topics: Ourviews | Crude oil | Inflation | Recession | Views |