Don’t adulterate

Even while consumers all over the world, including in the former communist world, face higher petroleum prices when world crude oil prices rise, in India this still does not happen as a matter of routine. Here, absurdly enough, the Union Cabinet meets to decide the price of petroleum products. Until now all attempts to reform the oil sector and dismantle the Administered Price Mechanism, to propose formulae for oil price changes and attempts to give autonomy to oil PSUs have failed in the face of populist policies.

Apart from encouraging the use of oil despite it being an expensive resource, the oil policy of the government has led to oil companies making losses. Though it may not appear obvious, reforming the oil sector requires exposing local oil companies to global competition. At present, a host of barriers make it difficult for the private sector to import and sell petroleum products in the country. India found its way out of a mess in the industrial sector—where there were thousands of incompetent companies dependent on favourable government policy to protect their profits—by cutting customs duties and opening up to imports. Today the same recipe should be applied to the petroleum sector. We should focus on opening up the Indian market for petroleum products to global competition, so that consumers should be able to fully bypass the ministry of petroleum. It will put the sector on the path to meaningful adjustment to competition and efficiency in a globalised setting. As long as their business depends on the anti-competitive policies of the government, oil companies will not be able to acquire the dynamism needed to get away from the clutches of the oil ministry.

One of the most damaging aspects of India’s oil policy is corporate governance. The government’s interference in the constitution of the boards of oil companies will seriously undermine their autonomy and viability. The minority shareholder of an oil company is forced to accept losses as a consequence of the UPA government’s political goals. The government likes to preach about high standards of corporate governance to the private sector. It could begin by adopting higher standards of corporate governance within the public sector.