Union finance minister Pranab Mukherjee on Sunday claimed that the government wants to free the retail prices of diesel and liquefied petroleum gas (LPG). While such a step would be welcome—as it would impose some discipline on consumers—this rhetoric, however, does not match the reality: The UPA-II government has so far raised prices of diesel by a mere Rs10 per litre, which is still short of the market level by Rs15 to a litre. In the case of LPG, although the volumes are lower, the gap is wider. Since the start of its second innings in May 2009, the UPA-II government has raised prices by a modest Rs115 per cylinder; to align with market requires a raise of Rs280 more.
In short, the price hikes needed over the next three years of the UPA-II’s term far exceeds what it has achieved in the last two years, assuming crude prices don’t continue their march northwards. This is nothing less than a gravity defying objective. The least of the reasons is that as elections near, governments avoid any measure that hit the common man’s pocket. In this case, both diesel and kerosene are mass consumption products.
But even for the near term, the task is equally difficult, with the government fighting fires in its backyard that can engulf it. The spectrum allocation and Commonwealth Games issues have etched negative impressions in the public mind, which could well carry through to the ballot box three years hence. Price hikes would hardly fit into the government’s salvage strategy: It is incubating large development schemes every month with little accent on audit of public funds, in the fond hope that it would douse public ire, however modest the trickle effect is.
And it is not as if the government has acquired the zeal of a new convert to go through with the pricing reforms. Even as late as last month, it chose to raise prices of diesel and LPG only mildly. Alongside, petroleum taxes were cut, by as much as 0.5% of gross domestic product. The objective was to improve the financial health of public sector oil companies that were running out of money to buy crude oil to keep their business up and running.
It is unlikely that this patch work will be given up and a more rational pricing system introduced.
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