Crossed Wires On Oil
In his speech at last weeks Partnership Summit organised by the Confederation of Indian Industry in Calcutta, P Chidambaram spoke at length of the need to improve the quality of consensus" within the 13-party government. Five days later that reads like a classic understatement. In the last three months of 1996, the finance ministry had hinted strongly at a second round of increases in the administered prices of petroleum products ahead of the Budget. On January 13, the prime minister emphatically ruled out this possibility. Mr Deve Gowdas Bijapur statement contradicted the signals that his finance minister was sending out: that tough measures were inevitable to bring government finances under control. It also suggests a dangerous lack of awareness of Indias economic problems.
One of the most visible present problems is the huge deficit in the oil pool account a deficit which results from excessive subsidisation of petroleum products. Administered prices were not raised for three years before last summer. Another major contributor to the present Rs 12,500 crore deficit in the account has been withdrawals by the government to finance revenue expenditure. The government now owes the oil pool account more than Rs 4,000 crore. The deficit is expected to rise to Rs 15,500 crore by the end of this fiscal year.
The administered pricing system has also created imbalances in the economy, with petrol prices 10 per cent higher than the global average and diesel prices 60 per cent lower. But it will take an exceptionally strong-minded government to dismantle a politically expedient system that subsidises the common mans kerosene at the expense of elitist" petroleum. Given that administered prices will remain for the foreseeable future, hydro-carbon sector analysts have suggested that the 15 to 20 per cent increase that was announced in July, which is expected to bring in revenues of Rs 7,780 crore, would be inadequate and that a further increase was necessary. But Mr Deve Gowda has now closed out that option.
The future crisis is therefore already clear. Growing industrialisation is expected to make India one of the top five oil-consuming economies by 2000. It already imports 43 per cent of its crude requirements. Reserves will cover only the next 21 years at current rates of consumption, which will grow. So India needs to produce more oil rather than depend on imports. But the oil pool deficit has left no money for public sector oil companies for exploration and development, which is the supposed purpose of any surplus in the account. By sending out a contradictory signal, the prime minister has made his finance ministers job tougher. The costs of political consensus, it appears, are becoming too high.