New Delhi: Kirit Parikh, retired Planning Commission member and co-author of the Integrated Energy Policy, said in an interview that he is disappointed the fuel pricing report has not been implemented. But he hopes that, with crude prices on the rise, the government will see the merits of ending petrol and diesel subsidies and allow market-determined prices, as his panel has recommended. Edited excerpts:
Still hopeful: Kirit Parikh, former Planning Commission member. Rajkumar / Mint
It has been months since you tabled your report on fuel pricing. Are you disappointed it has not been implemented?
Certainly one is disappointed. You write a report, you expect something will happen. But I have still not given up hope, I am sure the government would act on it. Circumstances were such—there was inflation, there were other concerns and one didn’t want to go ahead with increasing the cost of petrol further. But what is surprising to me is that the government did raise the price of petrol and diesel, but did not go to free market competitive price determination at the refinery gate as well as at the retail level.
As oil prices rise towards $85-89 per barrel, it becomes more pressing on the government to do something about it and the wisdom of our committee’s recommendations would dawn on the government...
But with rising prices, doesn’t it become tougher for the government to usher in market-determined prices and pass on the burden to buyers?
No, I understand that. When the price becomes higher, it becomes difficult for the government to immediately pass on the price to the consumer. On the other hand, when oil price becomes higher, it (government) wishes that it had done so in the past. Therefore, it is not that when oil prices become higher, the government can immediately switch to a free market price, but it would hopefully strengthen its resolve so that the next time an opportunity arises, it will go to a free market price.
Are you in touch with members of the oil ministry, or with the oil minister himself? What are they saying about the prospects of implementing your report?
I have not talked to anyone. I am not in a dialogue. I am no longer (a) member of the Planning Commission. I am not in government and we had just given a report, it was (a) unanimous report of the committee. The committee members have given the report with full hope that it will be implemented.
We still believe that eventually it will be implemented because the government doesn’t have any other option.
We are getting indications that it may not be possible to immediately deregulate diesel or raise kerosene prices by Rs6 a litre. A phased implementation is likely. How watered down a version would that be of your report?
I think whether you raise kerosene prices now or in a phased manner, or use LPG (liquefied petroleum gas) prices now or in a phased manner—to me, these are somewhat smaller issues. The larger issue, the biggest issue in the report, is making petrol and diesel prices market determined... You might justify subsidizing kerosene... You can even justify subsidizing LPG as we have argued in our report that LPG creates less indoor air pollution, it is good for women’s health and so on... But the subsidy or the under-recoveries on petrol and diesel is a different issue and they can become very large when the world market prices go up.
What do you think is the reason your suggestions are not being put in practice?
Our report is an expert group report, which should give its advice on the basis of what it thinks is appropriate and write from the economic point of view, from the point of view of the society and so on. On the other hand, politicians have a different perception. They have their perception, perhaps their sensitivity and understanding of real issues may be even better than that of the experts.
I don’t underestimate the need for political decision-making in these things. The politicians obviously have the right and also the obligation to take decisions the way they think is in the best interest of the society.
How big a role has inflation played in the delay?
...We had argued that the present policies of financing under-recoveries to government budget or giving bonds, etc., are equally inflationary. Inflation cannot be the argument for not acting on one or the other.
But of course there is a difference when you raise prices of diesel or there is a short-term and immediate inflation impact. When you issue long bonds, the inflation impact is somewhat delayed and the time preferences may be very different for politicians than we have.
Crude is now pushing $85-87 a barrel. What is your estimate of how much under-recoveries could balloon to if it stays at that level?
Crude has increased but the rupee has appreciated. So that would moderate some of the inflation. My guess is that if it remains at $85 per barrel, you will find under-recoveries, which we had estimated for around Rs45,000-46,000 crore last year, would become Rs60,000 crore.
Investors were optimistic your report will be implemented, at least partly. What are they saying to you now?
The investor community is clearly interested in are we going to open up the field to make it level-playing field for both public and the private sector and even level-playing field among the public sector entities because even that is not clear today whether it is a level-playing field among them. So their interest was how open, how level-playing field that is going to be and what investment opportunities that would be for both public and private sectors.
The report was critical even for maintaining the financial viability of public sector as well as of introducing private sector but the financial viability of public sector also depends on the kind of measures the government takes. So it is critical for both the point(s) of view and of course investors are interested in the viability of the players in the sector.