Decontrol oil price

Now that the Prime Minister agrees with P. Chidambaram that another oil price hike is unavoidable, people might assume a decision is round ...

Now that the Prime Minister agrees with P. Chidambaram that another oil price hike is unavoidable, people might assume a decision is round the corner. Even though the oil pool deficit is ballooning out of control warranting an immediate decision, it would be hasty to conclude that the government is about to make one. All governments manage to avoid the unavoidable for considerable periods of time and the UF has more than the usual constraints to work under. The realists in the Cabinet will be pleased to count I. K. Gujral among their number but it may not be enough to tilt the balance. The Left and the Congress made their opposition felt during Deve Gowda8217;s time and can be expected to try and throw a spanner in the works again. Opposition to the move could be swelled by the likes of Laloo Prasad Yadav who would find a new diversionary tactic in railing against a rise in the price of kerosene, the common man8217;s fuel8217;. Thus, while frequent repetition of the point about an unavoidable8217; hike could help prepare the public for future pain, what Gujral really needs to decide is how best to limit the political fallout.

On the whole he can probably count on a certain amount of political restraint for a while. For consistency8217;s sake, the Congress and the Left will have to make their noises. But having shot his bolt, Sitaram Kesri, at least, cannot afford to shoot off more letters. In any case, an effort must be made to explain to the people why rationalisation of oil prices is essential for the economy in the long run. This is especially so since the choice must fall largely upon kerosene, diesel and LPG. Subsidies have grown to an unmanageable size and distorted fuel use. Kerosene and diesel enjoy a subsidy upwards of Rs 6,000 crore. To remove such hefty subsidies in one go would be expecting too high a level of public stoicism. A phased hike in prices may be feasible. Whether even that is attempted depends on whether the political will can be found.

In many ways May looks like the right time for the inevitable. As far as the oil companies are concerned the sooner a decision is taken the better. A further delay is certain to bring on a crisis towards the end of the calendar year which, with the busy agricultural season and the anticipated pick-up in industrial production, is precisely when interruptions in oil supplies will hit the economy hard. Inflation, holding below eight per cent for several weeks, has dipped under seven per cent showing that the last hike in oil prices has been absorbed and new inflationary pressures are not in evidence. This suggests it is the best time to strike. One more price hike will make a dent but not wipe out the oil pool deficit which is estimated at Rs 15,000 crore or more. Ad hoc responses compounded by populism over the years have led to the present crisis. A long-term solution must be sought by freeing oil prices from government control.