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BUSINESS
Is the fuel price hike justified?
By
Devajit Mahanta
Just two days before the Budget session, the UPA government hiked
petrol price by Rs 4.00 and diesel price by Rs 2.00.
Any increase in price affects the general people. Doubts arise as to
whether the increase is justified? Increase in petrol and diesel prices
become emotive and political issues because both the petro products are
consumed by the disadvantaged section – in the agricultural sector, road
transport division and railways. And importantly, it upsets the common
man’s family budget. In the face of these facts, it is difficult to defend
any price increase despite sound reasons.
Petrol and diesel price hike is an inter-ministerial Cabinet issue. But
interestingly, there was no Cabinet decision made before the price increase
was announced by Petroleum Minister Murli Deora this time. This is the
second consecutive time that the Manmohan Singh government has increased
petrol and diesel prices without Cabinet decision. The previous hike in
prices had taken place in June 2008, when the retail prices were raised by
Rs 5.00 for petrol and Rs 3.00 for diesel.
The Budget session of Lok Sabha started on a stormy note on July 2, with
the Opposition and UPA allies, namely DMK and Trinamool Congress protesting
the hike in petrol and diesel prices and demanding a rollback which was
rejected by the Petroleum Minister. He said the Government had no choice
but to raise prices after the continuous increase in global prices. The Petroleum
Minister also assured the Lok Sabha that if there is a fall in
international crude prices, the Government will again roll back petroleum
prices.
Petro-products price increase has a spiral impact on the prices of other
commodities. In most cases the prices of other commodities which are
increased are not in proportion to the price increase of petrol, but much
higher. Some economists pointed out that due to huge taxes charged by the
Government, petrol and diesel prices are so high. If the Government reduced
the tax rates, oil companies can sell all their petro-products in much
lower price. But if taxes on petro-products are slashed, the immediate
effect will come in the form of dearth of funding for government schemes,
will hit the common man much more than the price hike.
India is the fourth largest
oil consumer in the Asia-Pacific region after Japan,
China and South Korea,
and bears an unmanageable oil pool deficit of almost Rs 24,000 crore, up
from the April figure of Rs 9,000 crore due to the recent upward trend of
international crude price. The Government without any futuristic plan has
in the last few years changed petro-product prices several times to protect
the oil company’s interests and reduce the burden of oil pool deficit,
rather than keep the interest of the common man in mind.
To minimise dependence on the international market, the Indian Government
should try to put into place a mechanism to meet the crisis caused by oil
price hikes. This can be achieved in two ways. First, by boosting domestic
production of crude oil and natural gas, and second, by working out
bilateral deals with oil producing countries like Iraq, Iran etc which will
enable reduction of vulnerability of the international market.
Instead of wasting more time on the present crisis, the Union Petroleum and
Power Minister has to come up with a long-term strategy to provide the
common people with cheaper fuel.
Readers can send their feedback at devajitmahanta@gmail.com
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