Slow and steady

Welcome move to raise gas, kerosene prices in small doses

The Union government has allowed oil marketing companies to raise the price of subsidised cooking gas for domestic use by Rs 4 per cylinder every month. In addition, it has decided to continue the practice of increasing the price of kerosene by 25 paise per litre every fortnight till such time the remaining subsidy is eliminated. Both the decisions are welcome. It reflects the government’s commitment to oil price reforms, taking full advantage of relatively low international crude oil prices. Earlier, the government had similarly linked the price of diesel to the market so that price changes happened in small doses. Politically, as against a one-time steep price increase, small and periodic increases make eminently good sense since they evoke little consumer resistance. The United Progressive Alliance government had used the same technique for deregulating the price of petrol. It is encouraging that oil price reforms have been embraced with equal commitment and political maturity by two successive governments irrespective of their political affiliation.

The logic of gradual changes is unexceptionable. Subsidised prices of cooking gas and kerosene have led to leakages, misuse and even abuse through adulteration. The government has already launched schemes to restrict the supply of subsidised cooking gas to only 12 cylinders a year, deny such subsidies to those with an annual income level of more than Rs 10 lakh and persuade consumers to give up the use of subsidised cooking gas voluntarily. More than 11 million cooking gas customers have volunteered to give up the subsidy. At the same time, the government has provided subsidised gas connection to about 25 million poor households, so that they switch over to a less polluting and more hygienic cooking fuel. 

All these schemes, along with periodic increases in prices, have led to better targeting of subsidies and brought down the government’s subsidy bill per cylinder from about Rs 410 in 2014-15 to Rs 109 in 2016-17. In kerosene, too, apart from periodic price increases, state governments have been persuaded, including through financial incentives, to phase out the use of kerosene by improving the availability of electricity to meet lighting needs and encouraging people to use LPG for cooking purposes. As a result, kerosene consumption last year fell 21 per cent and the subsidy on it declined from about Rs 28 a litre in 2014-15 to Rs 11 a litre in 2016-17.

However, the government has decided to raise the cooking gas price till the subsidy is eliminated or till March 2018, whichever is earlier. Current price trends and the monthly increase amount suggest that the subsidy may not be eliminated by March 2018. In other words, it is keeping its option of declaring a pause on a price increase beyond next March, perhaps for electoral considerations. This is disappointing. The government must remain committed to fuel price reforms and, in fact, expand their scope by encouraging participation of private players in fuel distribution in order to boost overall efficiency in this sector.