CONSUMERS SLIP ON UPA2 OIL SLICK
Government hikes petrol prices by Rs 7.50 per litre. It is not enough to curb subsidy bill.
On March 16, shortly after the Union Budget was presented in Parliament, Prime Minister Manmohan Singh told the media that the Government would bite the subsidy bullet when the time comes. Manmohan could not have imagined that the time would come as early as May 23, when his Government allowed a petrol price hike of Rs 7.50 per litre, the steepest ever in a single instalment. In the end, it wasn’t soaring global oil prices that forced the Government to rationalise petrol prices. Global crude oil prices, currently at around $ 92 ( Rs 5,060) per barrel, are well below the Government’s danger mark of $ 115 ( Rs 6,325). Instead, it is the Government’s economic mismanagement which has resulted in a sharp 20 per cent decline in the value of the rupee over the last nine months, which has resulted in inflated cost of oil imports.
The Government spent Rs 83,000 crore on oil subsidies in 2011- 12, almost 40 per cent of its total subsidy bill of Rs 2.16 lakh crore. The UPA’s fiscal maths for 2012- 13 would only work out if oil subsidies remained limited to Rs 40,000 crore. The rise in petrol prices is the first step towards meeting that goal. That is only a small part of the bullet that the Government needs to bite.
Diesel is being subsidised by approximately Rs 13 a litre. A lot of that subsidy goes to those who don’t deserve it— drivers of gas- guzzling SUVs, for instance.
A lot of the subsidy burden falls on upstream oil PSUs like ONGC and GAIL, who, at the cost of their refining and exploration activities, have to give discounted prices to oil marketing companies like Indian Oil. Diesel price deregulation should now be on top of the Government’s agenda to end distortions in the petroleum sector.