Raising the retail price of fuels in India has become a dramatic event with the matter getting over-politicized over the years. For governments loath to give up populist controls, these mass consumption products offer huge scope to showcase their concerns for the electorate. Ironically, they continue to ignore the fact that procrastinating — as the United Progressive Alliance (UPA) government did — only hurts or affects consumers more — the very same constituencies they evidently seek to nurture. They forget there is no free lunch. Consumers now face a considerable impact with Wednesday’s price hike, at a time when their pockets are badly stretched with high inflation overall.
Illustration: Jayachandran / Mint
Inflation was far lower in mid-2007, when global oil prices started spiking. But the UPA lacked the courage to raise fuel prices on a regular basis that would have given consumers a softer landing.
The previous — a much smaller — hike allowed by the UPA was in February. And it came after a whole 20 months! So, in the period since mid- 2006, over which average international oil prices doubled, India saw little correction in fuel prices despite the fact that controls had been — in principle — removed. In fact, the UPA, since it assumed power in summer 2004, raised prices a mere handful of times that year and fewer subsequently.
Was its predecessor any different? After the administered price mechanism (APM) was dismantled in 2002, although then National Democratic Alliance (NDA) government still did not allow the public sector-dominated industry independent market-based pricing for its products, it did ensure a continuous spate of small hikes. The frequency was far more than what has been seen in the UPA regime.
No one denies that rising oil prices and the need to raise domestic fuel prices — to both discourage wasteful consumption and ease the pressure on the oil companies reeling under severe under-recoveries — are a given today. So, the important thing is to innovatively manage the market alignment of domestic prices — the goal post is of effective decontrol.
Given this era of coalition politics, the first step is to leave the pricing to the petroleum ministry. Unlike NDA’s Ram Naik, former UPA petroleum minister Mani Shankar Aiyar refused to take that call and made fuel pricing a cabinet decision rather than a routine administrative affair — a throwback to the APM era. We can’t afford to get regressive on a key reform process.
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