Stable price mechanism

Consumers have little to complain about the rise in prices of petrol and diesel. With the dismantling of the administered pricing mechanism in the petroleum sector, such periodic revisions have become the order of the day. However steep the increase may be — Rs 2.50 per litre for petrol and Rs 1.50 for diesel — consumers know only too well that these prices have only brought the prices back to December-level. During the interregnum, the government had on three occasions reduced the petroleum prices by adjusting the excise duty. The present increase in prices has been necessitated by the $5 a barrel rise in the world crude oil prices since February. The government has authorised the petroleum companies to make a fortnightly revision of prices taking into account the fluctuating international price of crude oil. This means petroleum prices will no longer remain stable. To ensure that the prices do not increase or decrease beyond certain limits, the government will, however, make a quarterly review of the excise duty on petroleum products. This will bring about some measure of stability in the prices.

Over a period of time, the consumers are bound to reconcile themselves to fluctuating prices. With the government withdrawing itself from the petroleum sector, they know they will have to depend on the vagaries of international pricing. But they also know that the oil companies enter into long-term contracts with the oil producers and that they always keep a large stock of oil. In other words, a sudden increase in the crude oil prices does not immediately affect the oil companies unless it buys at that price immediately. Logically, the price at which the oil companies should sell their products is the price at which it bought plus the cost of refining, transportation and profit. The consumers will also look forward to enjoying some measure of uniformity in the prices among various companies.

In any case, a system has to be evolved under which the consumers are not fleeced by oil companies and their retailers. This needs to be pointed out as in many filling stations across the country, “out of stock” signboards were put up immediately after news spread about the increase in petrol and diesel prices.

Obviously, the retailers wanted to make a fast buck on their stocks as the increase was to come into force only from midnight. Needless to say, this caused hardship to a large number of motorists. The government will do well to ensure that incidents of this kind do not happen every fortnight when oil companies revise their prices.