Economist Kirit Parikh, chairman of the committee on revision of fuel prices, submitted his report to the government on Wednesday, recommending a roadmap for a viable and sustainable pricing mechanism for India. In an exclusive interview with the Hindustan Times, Parikh shared his views on the political and economic implications of his recommendations. Excerpts
On lifting fuel price controls
Any kind of control is bad and has to eventually go. When India moved towards the liberalisation in 1991, all controls were suddenly lifted. And we did see the benefits. So I don’t think we should be really concerned about what will happen if we remove this control regime in the petroleum sector.
On political will to implement recommendations
Well, I cannot comment on what will be the political take, but yes taking tough decisions during the UPA-I was much more difficult than in UPA-II. That apart, the government has realised over the years that the more it delays a decision on increasing prices, the difficult it becomes to implement a sudden and sharp price hike. You look at any of the neighbouring countries you will find the kerosene prices at three times the cost in India.
On the price hike suggestion
Somebody has to bear the impact of high crude prices as we are importing 80 per cent of our crude oil requirement. Suppose you say I am not going to raise domestic prices and put everything on the fiscal burden. High fiscal deficit eventually leads to inflation as the government then looks at other avenues to bridge this gap by levying high taxes, etc. So inflation is unavoidable if world oil prices go up and whether you pass on the increase to consumers or increase the fiscal burden.
On Rs 3 to 4 a litre price hike in petrol and diesel
Today at global crude oil prices of $80 per barrel, the increase that we are talking of is Rs 3 to 4 per litre. At crude oil price of $120 per barrel — we have already seen crude touching $140 in June 2008 — the quantum of hike required will be as high as Rs 20 a litre. The impact of such shocks is much larger than the impact of changing prices and aligning them with the market.
On Rs 100 increase in cooking gas prices
Instead of talking about a Rs 100 per cylinder hike, you must tell the consumers that even after the hike, they will still be paying Rs 200 less than the cost price of the cylinder. A litre of kerosene today costs less than a litre of mineral water. This is absurd and needs to be corrected.