As the prices of the Indian crude oil basket hover around $122-$125 a barrel, Finance Minister Pranab Mukherjee on Saturday said the UPA government would consult all political parties to build a consensus over petroleum reforms, once the Budget session concluded.
“After the Budget session is over, the Prime Minister would have to consult chief ministers and all political parties. We have to work out a mechanism to address the issue,” Mukherjee told reporters of financial dailies, a day after he presented the Budget in Parliament.
When asked whether the move of not raising the excise duty on diesel cars could mean petroleum reforms would be introduced after the Budget, he said reforming the petroleum sector was not a budgetary exercise. “We have to think collectively as a nation over the issue. Suppose petroleum prices rise to $150 or $160 a barrel, would the country have the capacity to import petro products at the same existing level? Therefore, the nation, as a whole, all stakeholders, all political parties and states governments, have to address this issue,” he said. The finance minister, however, did not specify the reforms. The issue of deregulating diesel prices has secured the in-principle nod of the government, but is yet to be effected.
“Reforming the sector is a much larger issue, not merely giving subsidy or enhancing the price or regulation or deregulation. We have to take a view on this. The Budget is not the appropriate mechanism through which we should have done it,” he said.
Economic Survey 2011-12, presented a day before the Budget, had suggested fixed subsidy for every litre of diesel sold, as an interim step to move towards diesel de-control.
When asked whether these reforms could happen despite the difficult political situation, the minister said even when the bold reforms in 1991 were carried out, the Congress did not have a clear majority in Parliament and was not in power in many states.
“Political, economic system and overall culture of this country has a trait that when the crisis comes, the nation wakes up, all the stakeholders wake up,” he added.
Admitting raising the excise duty and service tax rates by two percentage points would have inflationary impact, the finance minister said it would only be marginal. On whether the rise in excise duty would depress demand, he said the Budget had allowed some sectors like power, aviation and low-cost housing to tap external commercial borrowings (ECBs) and reduced withholding tax on interest payments on ECBs from 20 per cent to five per cent in core areas, which along with other steps, would boost demand.
Even as there is a debate over diesel de-control, petrol prices are not fully out of the administrative mechanism. Even when global prices rise, there is no system to pass on the burden to domestic customers. Thus, subsidies of the government increase for oil marketing companies as they go for losses. Part of the contribution is also made by upstream oil companies. In the Budget estimates for this financial year, only Rs 23,640 crore was provided as petroleum subsidy, but in revised estimates it was raised to Rs 68,481 crore.
