With global crude prices touching $129 a barrel this week, the UPA government has to urgently take a decision: does it or does it not raise domestic prices of petrol and diesel? Time clearly is running out as State-owned oil majors are bleeding like ruptured arteries from the existing pricing regime that insulates the urban middle class from soaring international prices of oil. Indian Oil Corporation (IOC), hit by its first quarterly loss in two years — to the tune of Rs 414.27 crore during the fourth quarter of 2007-08 — has decided to restrict the sales of petrol, diesel and LPG cylinders to staunch the haemorrhage. Bharat Petroleum Corporation Ltd (BPCL), on its part, has also partially capped sales of fuel. So, if the government is keen to protect the aam admi from oil inflation, especially in view of electoral compulsions, the point is that it can no longer make the IOCs and BPCLs bear the brunt of adjustment.
So, as the question goes, what is to be done? At the outset, the Union Finance Ministry has rightly dismissed the buzz that an oil cess was on the anvil. This would have ensured that petrol and diesel prices remain where they are while paying for the subsidy on petroleum products to bail out the oil majors. But this is a terrible idea, although Finance Ministers in recent times have made it a habit to announce a fresh surcharge or cess in every Budget. The broader point, however, is that such instruments of revenue mobilisation are regressive in their impact as even non-users of subsidised fuel have to shell out the cess from their incomes.
The other option — preferred by the Left — is for the UPA government to bear the entire burden of insulating the common man from the ravages of oil prices and providing succour to the beleaguered oil companies. As the CPI(M)’s Sitaram Yechury had argued in these pages, the government’s revenues rose by Rs 35,000 crore due to the rise in international oil prices. So, if this windfall gain were returned to the oil companies, the pressure to raise prices would ease. But this is a no-no for the government that has to fund its National Common Minimum Programme commitments. If the government also feels that it cannot endlessly subsidise the losses of oil companies, is there any alternative to biting the bullet and raise petrol and diesel prices? A decision simply cannot be postponed.