Over a barrel
With the benchmark price of crude nearing the $ 100-per-barrel mark, it is no longer a question of if, but of when and how the financial burden of subsidised petroleum products would be passed on.india Updated: Nov 05, 2007 22:34 IST
It is perhaps time to stop counting the wounds at some point, and focus on the healing. The saga of increasing global oil prices does not seem to end, and the government, with its quaint mix of hope and ostrich-like optimism, is finally veering around to the view that something must be done to harmonise domestic petroleum prices with international levels that are far higher. With the benchmark price of crude nearing the $ 100-per-barrel mark, it is no longer a question of if, but of when and how the financial burden of subsidised petroleum products would be passed on. The current formula of splitting the burden between oil companies and the government (which issues bonds to the firms) is a shaky one.
The estimated losses to State-run oil companies this year are around Rs 55,000 crore on this count. With the inflation rate based on wholesale prices close to a very reasonable 3 per cent, the government could think in terms of raising fuel prices. But on last call, they were frozen until March, although a meeting between the petroleum and finance ministers last week suggested that the government was more concerned than ever before.
But then, politics looms large. Consumer prices are at levels well above wholesale prices and inflation would become a key talking point if the numbers look bad when Gujarat holds its assembly elections. It does not help that the CPI(M), already on the edge over the nuclear deal with the United States, holds a hawkish position on inflation as well. Talk of early general elections would possibly lead to a postponement of the government’s plan to bite the bullet. A 12 per cent rise in the rupee against the US dollar this year, and a general surge in economic growth and tax collections, do allow the government some elbow room, but surely, fiscal profligacy is not what the doctor ordered for an economy aspiring to superpower status. Perhaps the best course for the government would be to sell the idea that Indians must learn to live with higher oil prices and psychologically prepare them for the sting that must come sooner or later.