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NOV 05 2012

Dithering on all cylinders

  • Economic Times, ET Bureau / Hyderabad
  • Created: Mon 05th NOV 2012

The sorry implications of the LPG price rollback

Following the government’s decision to increase the price of diesel and introduce a cap on the number of subsidised gas cylinders available for household use in September, there was a reasonable amount of hope that the United Progressive Alliance (UPA) had learned some lessons. First, that it was essential to reduce the fuel subsidy bill, the most obvious component of the ballooning central fiscal deficit. Second, that the political costs of being seen as responsible for the price of fuel — instead of international market forces — were greater than the benefits of keeping prices low. And third, that consumers should be allowed to get used to marginal ups and downs in the price of fuel. However, it seems, given events at the end of last week, that the UPA simply does not have the backbone to put these lessons into practice: in particular, the sorry spectacle of an increase by oil marketing companies (OMCs) in the price of unsubsidised liquefied petroleum gas (LPG) cylinders being rolled back within 12 hours.

The overall price hike in unsubsidised LPG was relatively small. Prices were raised by Rs 26, taking the price of an unsubsidised cylinder in Delhi to Rs 922 – a four per cent increase. If the government feels even this marginal increase was problematic, how will it take the bold steps necessary to bring the oil subsidy bill down from a prospective Rs 1.87 lakh crore this fiscal year? As it is, the LPG subsidy is large enough to hurt. The price of a subsidised cylinder in Delhi is Rs 410, meaning that the government subsidises more than half its value, around Rs 500 a cylinder. Further, maintaining administrative control over the price of an unsubsidised product mocks the very notion of “unsubsidised”, and renders the cap on the number of subsidised cylinders meaningless. Surely Petroleum and Natural Gas Minister Veerappa Moily is aware of this. Certainly, some considered it possible that he took over from his predecessor, Jaipal Reddy, in order to ensure that market forces were given more play in the fuel sector. An unwillingness to tackle such reforms squarely will merely strengthen the voices of those, such as Arvind Kejriwal, who believe instead that Mr Moily was brought in to serve corporate interests.

Mr Moily’s recent statements claiming that the hike was the OMCs’ decision, and that it was carried out for their internal administrative reasons, are not likely to be widely believed. After all, the Congress was facing a tough election battle in Himachal Pradesh, with the price of cylinders a major electoral issue. Indeed, Mr Moily has gone so far as to say that the decision on the cylinder cap is also up to the oil companies. Raising the cap, he says, “is a matter the oil PSUs will have to consider ... we [in the oil ministry] have given a lot of liberty to the oil companies.” Instead of paying lip service to the OMCs’ independence, it would be better all round if Mr Moily put those words into practice.


Delhi Gas Veerappa Moily Natural Gas Oil Marketing Companies Petrol Petroleum Public sector units Liquefied Petroleum Gas

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