Date:03/12/2004 URL: http://www.thehindubusinessline.com/2004/12/03/stories/2004120300091100.htm

Back The oil price riddle

G. Srinivasan

THE Bharatiya Janata Party appears to have discovered the merit of highlighting economic issues impacting the people. After the walk-out from the Lok Sabha on Wednesday on the first day of the winter session over the inflation issue, the party did a repeat on on Thursday on the rollback of petro-product prices.

The United Progressive Alliance (UPA) Government was on the defensive on its November 4 decision to hike petrol, diesel, PDS (public distribution system) kerosene and liquefied petroleum gas (LPG) prices, after the CPI member Mr Gurudas Dasgupta raised the issue during question hour.

Embarrassed at being on the receiving end from an ally, the Union Minister of Petroleum and Natural Gas, Mr Mani Shankar Aiyar, lost little time in reminding Mr Dasgupta that "had the UPA Government followed the United Front Government's (in which the CPI had been a coalition partner) decision in 1997of dismantling the administered pricing mechanism (APA), petro prices would have gone through the roof in the wake of the unprecedented rise in crude prices". The Government under the Prime Minister, Dr Manmohan Singh, had "carefully managed" the price situation by "humane" steps and "close monitoring", he said.

When Mr Basudev Acharya (CPI-M) pointed to the "cascading effect" of petro product price hike on other commodities, the Minister said the Government had reduced the excise duty on petrol, diesel and domestic LPG on June 16 followed by another round of cut on prices, besides reducing the Customs duties on petrol, diesel, PDS kerosene and domestic LPG. Mr Aiyar reminded the members that the revenue implications of the duty-cuts must be weighed, as the Government needs massive resources for development. He said the removal of all the tariff protection (the duty differential between petroleum product and crude or the level of effective protection) to refineries would cost the Government Rs 5092 crore, over and above the under-recovery of Rs 9,801 crore they are saddled with.

Wen this did not cut ice with members determined to wrest some rollback, the Minister blamed the State governments for not reducing the sales tax,. When a member sought to know the possibility of pursuing a differential LPG pricing for people below the poverty line (BPL) and those in the lower middle-class, the Minister said there existed a differential pricing policy for domestic and commercial LPG users but the Government was not thinking of reduced price for certain sections of the domestic LPG users.

When some members insisted on cooperation with neighbouring countries in reducing domestic fuel costs, the Minister cited the ruling price of LPG in neighbouring countries. He said LPG was sold in Pakistan at Rs 355, in Nepal at Rs 470, in Sri Lanka at Rs 384, while in Delhi it is sold at Rs 281 per cylinder. Any cooperation would only mean raising the product price to their level. Mr Aiyar also reminded the members that the LPG price in India is Rs 158 still lower than "if we have gone through import parity price level". Because of this, the profitability of the oil marketing companies was down by Rs 3167crore between April- September 2003 and April-September 2004.

The Minister said that the price of "Indian basket" of crude, drawn from different sources, had gone up from $28 per barrel in 2002 to $37.50 this year and consequently the oil import bill would zoom from $18 billion in 2003-04 to $24 billion this fiscal. Yet, neither the Opposition nor the Left party members were unconvinced of the economics of oil and its pricing.