Fuel price control?

Govt should allow domestic prices to fluctuate

The global price of crude oil, as measured by the benchmark price for a barrel of Brent Crude, on Thursday rose above $75 per barrel for the first time in 2019 in the wake of tightening sanctions on Iran. The path of prices is uncertain, but several analysts believe it could go past $80 a barrel in the medium term. Earlier this week, the Trump administration in the United States announced that exemptions to five countries, including India, from the US’ Iran sanctions would not be extended. This, alongside cuts in Russian exports of crude oil, has pushed global oil prices to the highest point that they have scaled this year. India, as a major beneficiary of the Iran exemptions, is hardly immune to recent developments in particular. So logically, the prices of fuel at the pump in India should react to these movements. After all, the prices of petrol and diesel in India have been deregulated and are supposed to move in tandem with the global prices of petroleum products. State-run fuel retailers, in fact, switched to daily price revision from a fortnightly pricing system in June 2017 as the government sought to further the pricing reforms in the sector.

 
But over the past six weeks, the price of a barrel of crude oil on the global market has increased by almost $10; it was around or below $65 a barrel in early March, and is now close to $75 a barrel. In a deregulated market, the price of petrol at the pump in India would also increase, equivalently, by between 10 and 15 per cent. But domestic fuel prices have not increased, except marginally. This is worrying. It is another sign that political considerations are still determining the scale and timing of changes to domestic fuel prices in spite of the claim that the administered fuel price regime has been dismantled. The fact that a general election is on lends credence to the theory that politics is responsible for the domestic oil companies not raising prices concomitant with an increase in costs. There is also historical evidence to support the notion. Most obviously, before the Karnataka assembly election at this time last year, domestic price increases were kept on hold in spite of an increase in the global price of a barrel of crude oil. It seems clear that the policy of fuel price deregulation is being undermined.

 
This is short-sighted. The point of fuel price deregulation was to allow the public to recognise that prices at the pump were beyond the control of the Indian government. If the Indian government attempts to control these prices, it rapidly finds itself running into trouble in terms of overspending, pushing up the fiscal deficit and also the current account deficit, and exposing the economy to the risk of a crisis. By signalling to the public that political factors still determine the price of fuel domestically, all the good work — and pain — of deregulation is being undone. It is to be hoped that at the next revision of domestic fuel prices they will be pushed upwards significantly by the companies — even if the elections are not over. Or considerable built-up credibility will have been lost, for reasons of petty politics.