There is a growing case for another cut in domestic fuel prices, following the one announced earlier on 6 December. Global crude oil prices are expected to be pushed down further because of recession and deflation in many parts of the world.
This is an opportune moment to finally do away with government control of fuel prices. Planning Commission deputy chairman Montek Singh Ahluwalia has said in an interview with Bloomberg that domestic fuel prices should be linked to global prices.
That’s easy when the oil prices are dropping. The real test is when prices are going up, as they did in the first half of 2008. Governments rarely move fast to adjust domestic prices in inflationary times.
High fuel prices are always a political hot potato, in India and elsewhere. Inaction in 2008 has left us with two problems: a large fiscal deficit because of rising fuel subsidies and a cash drought in the major oil companies. Controlled prices are also an incentive to guzzle fuel. Let us not make the same mistakes during the next upswing.