On Tuesday, petroleum and natural gas minister S. Jaipal Reddy said price increases in diesel and cooking gas were “unavoidable" even as the meeting of the Cabinet Committee on Political Affairs, which could have possibly discussed the matter, was postponed.

“As I said before, however painful and difficult the increase in price of oil product may be, increase is unavoidable. (To) what extent can consumer take (it) is another matter," Reddy said.

The “inevitability" of a fuel price increase now borders on what Marxists term historical inevitability. The last time these prices were raised was more than a year ago. By one estimate, if the price of the basket of Indian crude (per barrel) averages $110 and the exchange rate of the rupee to the dollar averages 55, the upward adjustment required in diesel prices to maintain budgeted subsidies will be 19 per litre (assuming that liquefied petroleum gas (LPG) and kerosene prices do not change). Both the dollar and the crude oil price are hovering above those levels.

Even if LPG prices are revised substantially, the required hike in diesel prices will require a serious dose of political courage, a commodity that is scarce in this government. There is no doubt that an increase in the diesel prices will be effected sooner or later, the question is about the quantum of the hike. That is not all: these “administered" hikes will not solve the problem, but only postpone them for short durations before the problem re-surfaces. This government has not devoted any thought to a lasting solution to this problem. The way ahead is not of quietus between rounds of painful and heavy price adjustments: oil prices need constant re-adjustments. It is best that there be a higher frequency of adjustments with moderate increases. Politically, the latter course is less painful than the huge hikes that provoke street protests.

Why is the government unable to solve the oil price adjustment problem? Tell us at views@livemint.com

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