Much to the dismay to oil marketing companies (OMCs), the government has decided not to hike fuel prices soon. OMCs are crying foul over the loss that is incurred over the under recovery adding per day. Kirit Parikh, Member, Planning Commission is disappointed at the government's inaction warning that it will spell trouble for the fragile Indian economy.
In an interview to CNBC-TV18 he said, "If you don’t revise fuel prices at this stage, these years’ under recovery would be more likely to be around Rs 200,000 crore. I think this would really lead to lot of inflation may be not immediately but few months down the line."
Here is an edited transcript.
Q: What have you made of the lack of any revision that we have seen in fuel prices even petrol?
A: This spells lot of trouble for the Indian economy. If you don’t revise fuel prices at this stage, these years’ under recovery would be more likely to be around Rs 200,000 crore. I think this would really lead to lot of inflation may be not immediately but few months down the line.
So not only this is bad for the Indian economy, I think it is even more troublesome for the public sector OMCs. I think the government seems to be keen on really putting these companies under great pressure. Their debt equity ratio has become so high that if the financial year closed on end of July 2012, then they would all have been declared as BIFR companies. I just do not see what is the thinking behind the government’s inaction on the petroleum price inaction?
Q: Do you think something as simple as petrol prices, petrol being a deregulated product, can be hiked anytime soon?
A: I think the petrol price deregulation is a double-edged sword for the OMCs. On the one hand it has been deregulated; on the other hand, the government doesn’t give the OMCs full freedom to set petrol prices. But the Finance Ministry says the petrol price is deregulated, so the under-recoveries that you have on account of petrol would not compensate the OMCs, because it’s a deregulated product.
So I think this is completely inconsistent policies of the two ministries of the government. I would rather suggest that what the government needs to do at this stage is to reduce the difference between petrol and diesel price. This can be done by reducing excise duty on petrol by Rs 10 and increasing excise duty on diesel by Rs 2, the revenue would remain the same, because diesel is about 5 times as much consumed as petrol.
I think diesel price should be raised by around Rs 3 in addition to that. So it is about Rs 5 higher than what it is currently. This would have two benefits.
One, obviously the under-recoveries would go down. Second, I think the difference between the diesel and fuel oil price would disappear. Or, at least diesel would be more expensive than fuel oil and about 3 million tonnes of diesel that is being diverted in place of fuel oil would stop. Even to that extent under recoveries come down further.
This is certainly a desirable action to take and I think reducing the difference between diesel and petrol is important, because a large amount of distortion is taking place. 90% of the cars being purchased are diesel driven vehicles and this is really leading us to a long-term commitment of consuming diesel. That is perfectly alright if you have no subsidy on diesel price.
Q: But do you actually see a) may be a hike of the diesel price or b) even tweaking of the excise duties on diesel and petrol happening perhaps even in this fiscal year given the political in-consensus?
A: I am not an astrologer who can forecast what this government will do. But it seems that it has been really not taking any action for quite a long time. So one almost doesn’t hope that – doesn’t expect it to do this.
But of course one cannot lose hope because the situation is becoming worse and worse everyday. May be this situation has now become so bad that that should frighten the government into taking some action now. Hopefully may be in the next few weeks or months some action will be taken on this front.