A lot is being said and written about high international crude oil prices. Let’s have a closer look at it. Currently international crude oil prices are hovering around $130/barrel. The last time the petrol & diesel prices were revised was in June 2006, almost 2 years ago [Obiviosly I am not considering the recent hike! Adds to the dramatic effect ;) ]. At that time crude was trading at $63/barrel. Now the price has more than doubled but the petrol and diesel prices remain untouched due to the underlying political sensitivities. With a string of embarrassing defeats in successive legislative assembly polls, the government thinks that it can ill-afford to raise the retail prices of petrol & diesel. However the losses of Oil Marketing Companies [OMC’s] are mounting by the day. Just a couple of weeks ago, IOC chairman Sarthak Behuria said that the company has cash available only till September to fund imports. This statement bodes ill not only for IOC but also for India as a whole. With the nation almost on the verge of an oil crisis, the government has limited options before it. Let’s have look at them. As a first option the government can raise the retail prices substantially to reduce or even expunge the under recoveries of these OMC’s. But this is highly unlikely given that general elections are just round the corner. Besides the already fired up inflation numbers will get further stoked. So this option is ruled out. Secondly, the government can rationalize the oil duties to reduce the impact of high crude prices on the balance sheets of the OMC’s. However the finance ministry is strictly opposed to it as it will hamper it’s revenues given that oil duties make up for more than 30% of government’s revenues. It is demanding for the imposition of additional cess or surcharge to make up for these losses. However even this is unlikely to be accepted both by the government as well as the Left parties. As a third option, the government can use a combination of 1st and 2nd options to provide some sort of relief to these oil retailing companies. This proposal is expected to pass the political muster of both- the ruling UPA party as well as it’s Left allies. Whichever option the government chooses, one thing is for sure- that the days of low petrol and diesel prices are gone for good. The government must quickly get its act together and tackle this issue with utmost urgency rather than postponing it. As it is said that a government can either be good one or populist one. Hope it chooses the former option

– Abhinandan

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