Slick and indebted

The hike in the price of petrol by Rs 2 and diesel by Rs 1 after six whole months of deliberation and many postponements by the UPA government makes a mockery of the entire exercise. The Congress8217;s approach to putting off the Fiscal Responsibility and Budget Management FRBM rules for three years and pushing up deficits for its political gains has obviously shaped the policy behind the price hike. Equally condemnable is the opposition8217;s reaction to the price hike. The BJP and the Left parties have threatened to protest. Consider the numbers to know how irresponsible both the government and the opposition are.

The under-recovery of oil companies is estimated to be Rs 71,800 crore. Owing to the price hike the under-recovery is expected to reduce by 1.2 per cent, or Rs 840 crore. A small percentage of the under-recovery, 8.4 per cent, will be borne by the marketing companies. Upstream companies like ONGC and GAIL will give marketing companies discounts worth Rs 24,000 crore. The bulk of the deficit, 52 per cent, will be borne by the government through the issue of oil bonds. By preventing the prices of petro products from rising, the government is not just encouraging the use of more petro products, that will impact the environment for future generations. Ironically, the costs of this policy will be borne by our children and grandchildren. Whether the government gives a direct on-budget subsidy or gives a subsidy by borrowing the money as oil bonds, it means exactly the same thing for its borrowing and interest repayments. The Left argues that since taxes constitute half of the cost of petrol paid by the consumers, the government should cut excise duty so that the retail price of oil does not rise. The option of cutting excise would have yielded worse, not better, results. The price of petro products would not have gone up at all while the deficit would have gone up by the amount of excise reduction this would have meant. This is a wrong pricing signal to give consumers in an oil-importing country when the global price of oil is rising.

Not only does the UPA want to borrow from future generations, it is also hurting petroleum companies. Petroleum marketing companies are now bearing losses to the tune of 8.4 per cent of the under-recovery. But a most damaging aspect of this is corporate governance. The minority shareholder of an oil company is forced to accept losses as a consequence of some political goals of the UPA. This is short-sighted.