Humpty Dumpty got off the wall,
Humpty Dumpty went to play ball,
The Maharanis courtiers and Yuvraj's men,
Said they'd not mess with fuel price again !
The opposition rioted; called a 'Bandh' for all,
But the silliness stopped when FM stood tall,
Whither other subsidies?
What about reforms?
Has Humpty Dumpty reverted to norm?
One does not know; One never will,
Is Humpty back on his fence?
Content to be still.....
"So Is the subsidy reform by deregulation of Oil and Gas just a diversionary tactic, or a strategic step towards fixing systemic asymmetries?"
THINK & WRITE........Your Opinion is INDIA's Voice !!!!
The subsidy reform by deregulation is a diversionary tactic by Government and not a strategic step, I say this because if deregulation of Oil and Gas would have been the prime motive and cutting the under recoveries then GOI would had implemented it fully by full de-regulation. There was just a partial increase in diesel and the ministry has clearly stated that it’s in no hurry to deregulate the diesel prices soon. This little increase will no doubt cut the under recoveries (in which diesel forms a substantial proportion) but it’s not a strategic move because this step will neither full fill the vision of Kirit parkeh(KP) report of cutting under-recoveries to nil nor will it go fine with common people. We all now that on Friday inflation figures came in and they rose, food inflation also rose (main reason was attributed to fuel inflation). I agree that in the longer run inflation will be negated through policies but immediate increase doesn’t go fine with common Indians. When KP report asks for an increase of INR 200 on every LPG cylinder, GOI increased only 35.When KP report asks for increasing and limiting kerosene oil, only partial increase was done to make oil companies happy and not to raise anger of BPL Indians. These steps may curtail our under-recoveries to INR 53,000 crore but companies will still bleed. This may reduce our deficit, but should it be done at the expense of non-strategic decisions. In USA every petrol pump at different times have different rates, we no doubt must make our system linked to crude oil prices but it must be backed by sound strategic decisions not hazy decisions of trying to plug something here and something there. Half done is still a job undone.
ReplyDeleteThe second term of UPA government is burdened fromhigh expectation of Oil marketing companies(OMC) since the companies are incurring heavy loss because of prices set by Ministry of Petroleum & Natural Gas (MOP&NG).
ReplyDeleteIt starts from Mr Murli Deora has set forth 6-8 weeks for possible action on the various oil related issues. The ministry has formed expert group and asked them to submit the detailed report on the impact of the global oil price and recommendation for betterment. As per approved report by Mr Kirit Parikh, complete deregulation of petrol and diesel prices, Rs 100/cylinder hike in LPG and Rs. 6/litre hike in kerosene. Therefor, hiking the oil prices and subsequently dergeulating of petrol and diesel price are strategic move from government to maintain decorum with OMCs. After declaring the revised oil price in the starting of this month, opposition has started protest against this move because they were emphasizing on inflation and subsequently to food inflation and consumers.
However,MOP&NG has prepared a draft Cabinet note on linking the price of petrol & diesel to the price of crude oil in the international market. According to the proposal, oil marketing companies will be given the leeway to fix the rates of petrol and diesel till the price of crude stays below USD 75 per barrel. Once the price goes overboard, the government would intervene to protect the consumer’s interest. Therefore, deregulation will relieve government from blaim of hiking oil prices and parallely keeping opposition away from subsequent revision.
During the next 60 minutes to our Oil Secretary Mr.Sundareshan declaring deregulation of petrol and price hikes of previously unheard magnitude in other subsidised fuels, Mr.Kirit Parikh got 82 missed calls from the media. This shows how even the Indian media contingent which quotes its “Sources” even before important GoI decisions, was caught unawares by the eGoM. Given the limited mandate that the present UPA Government has from its coalition partners in policies of national significance, it is indeed a commendable manoeuvre primarily brought about by mounting subsidy bills and reluctance of the FM to issue any further oil bonds.
ReplyDeleteThe fact that Rs.80,000 crore revenue cushion from 3G auctions was not even considered and diesel prices were hiked inspite of a double digit WPI inflation sends a clear signal to industry and the general public as a whole – Share the Pain. With the opposition benches practically nonexistent and no elections in any part of the country for the next six months – the timing couldn’t have been better either. The opposition to the hike for that matter ; be it from coalition partners or the opposition benches, quickly long lost steam except for a day long ‘Bharat Bandh’.
All said and done, diesel price deregulation and what if oil price touches $100 is the litmus test for the UPA Govt. Even a half step backward can hurt our economy really bad in the long run. Let’s not forget the APM experience so fast.
Before we get into a long drawn discussion on whether the subsidy was a diversionary tactic or a strategic move, we need to look into the quantum of the price rise implemented. Also, Petrol is the only fuel that has been fully deregulated. Diesel, Kerosene and LPG, the 'fuel of the masses' have not been affected that badly. There was an article in Business Line that gave a calculation that said that this rise will increase the expenditure of an average Indian travelling for 50 km by Rs 170 per week. This doesn’t seem that high. Also, it was clear that the government could not bear the burden of the OMCs’ wayward ways for much longer. Even after the deregulation, it still falls short in under recoveries of OMCs by about Rs 54, 000 crore, half the amount received through BWA and 3G auctions. So any gains in the auctions have definitely been nullified.
ReplyDeleteAll that said, there is also the logic that linking the oil prices to market isn’t all that great an idea, especially considering their volatility and Ambani senior himself has hinted that oil prices are going to reach three figures by October. The government has also not helped its own cause by not making it entirely clear when is it that it is going to interfere if the oil prices sky rocket.
Hence, there is still a long way to go, and let’s hope that the first successful step has been taken towards a new 1991.
The deregulation of petroleum sector has always been a strategic step. The point was who will bell the cat. Be it the NDA Govt. under A.B. Vajapee who initiated the APM reforms in 2002 when the congress was in opposition crying foul or the present day UPA Govt. bringing back the reforms due to mounting under-recoveries of OMCs, with opposition NDA organizing a ‘Bharat Bandh’, which is nothing but an opportunistic measure in the wake of high WPI inflation. Secondly, as against the earlier reform when both petrol & diesel prices were deregulated based on Rangarajan committee report when the crude oil price was just $35/bbl, the present regime has taken a step to deregulate petrol prices only while increase diesel, LPG & kerosene prices but not as per Kirit Parikh recommendation, probably with the intention not to expose the consumers to a sudden increase, though KP had fully analyzed the impact of such price increase on the masses. This may indeed be a very well thought strategic plan. Thirdly, in the WPI index the Fuel group weights about 14.23% and inflation increase from the fuel hike will be about 1% only. Lastly, deregulating the market will allow price discovery mechanism to operate, leading to competitive market structure and possibly introduction of alternate fuels that will be more efficient and energy conserving, otherwise what is happening today is that refineries are reducing their LPG production and instead converting these fractions into propylene’s which enjoy better refinery margins.
ReplyDeleteThe point to be noted considering the high volatility in crude oil prices from $145 in 2009 to $35 and then again rising to $80/bbl, is that will the Govt. want to expose the consumers to this risk and let price discovery mechanism take its course or will the govt. as it previously did, regulate the prices as election approaches.
Please forgive this bold suggestion if it violates the rules of this voice raiser, Here Goes:
ReplyDeleteHumpty Dumpty got off the wall,
Humpty Dumpty went to play ball,
The Maharanis courtiers and Yuvraj's men,
Said they'd not mess with fuel price again !
The opposition rioted; called a 'Bandh' for all,
But the silliness stopped when FM stood tall,
Whither other subsidies?
What about reforms?
Reform of the oil sector is long overdue,
Fatalities of OMCs’ starts from margins to residue!
And they said, Our heart lies with subsidies, not deregulation.
Is it their semi-white collar? Or Just an expression of frustration.
Global oil prices are not moderate enough to hold the financial system,
KP report arrived, bond braced, deregulated luxurious petrol.
Yet the reforms are shielded by political hitches or by OMC’s distribution system.
Past the worst to the fuel of masses, and still common man arrived at their threshold.
Western air is considered necessary but not the western rates, simply adulteration is encouraged.
The partial oil deregulation lacks any sense of strategic conviction as price controls scratched.
Interpreting the pause as the problem to strategic decisions,
Has Humpty Dumpty reverted to norm?
One does not know; One never will,
Is Humpty back on his fence?
How Humpty did scuff the market forces?
If I am compelled to answer every question, I am the one compelling me, some-how!!.
Thanks to the situation in Europe and Greece in particular, oil is imported at lower price now.
Cheers
Varun Prabhakar
This comment has been removed by a blog administrator.
ReplyDelete"Humpty Dumpty sat on the wall , Humpty Dumpty would have had a greater fall"(if it weren't for these subsidy reforms in the form of deregulation of oil and gas prices.) I think ,this is a strategic step on the part of the govt. As we all know,the govt. sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers from sharp fluctuations in energy prices. This affects earnings of OMCs such as BPCL, HPCL and Indian Oil which are forced to sell fuel at below the prevailing market rates, for which the government provides certain subsidies to such companies to compensate the sale of fuel at cheaper rates.Infact,the fuel, fertilizer and food subsidy are major reasons for large fiscal deficit in our country and the Govt. intends on reducing the burden by taking on such reforms.Also, such a step will send positive signals about our economy and lead to better investor sentiments towards India. I'd like to bring another negative aspect of subsidies into consideration.One of the major reasons for the doubling of oil prices from 2007 to 2008 was these extensive reforms by Asian countries like India ,China.Such reforms, meant that, regional consumers faced no real pressure to reduce consumption or switch to alternative fuels despite the doubling in crude costs.The entire burden of adjustment therefore fell on households and firms in the advanced industrial economies. Prices had to surge high enough to force deep cuts in the western world’s oil consumption to offset supply shortages and unrestrained demand growth in emerging markets.The Deregulation will ensure that reagional consumers are far more exposed to any rise in oil prices and should react much more quickly to curb consumption in future. It's high time that "Humpty got off his fence and acted for common good" ...
ReplyDelete:)
Kanwardyal Singh(K.D)
20,PGP10
In the middle of the best event in the world (World Cup Football) Indian Government has announced to deregulate the price of Petroleum Products, which created immense joy to all the “Educated Indians”. And I am one of those “Educated Indians”.
ReplyDeleteAccording to me the decision of deregulation of price taken by GOI is a strategic decision. The strategy of any government (whether it is NDA, UPA) in India is to hold the “Chair”. The main funda to fulfill this strategy is not to hit the emotions of the Indian pupils and the coalition partners. And to safeguard the magic number 273 the government sometimes cannot take the rational decisions.
This UPA government took the decision of deregulation in a strategic way:
1. The major force behind this deregulation is Indian National Congress (major party in the coalition of UPA), who knew that they are short of only 63 and it can be managed from anywhere if any party of the coalition withdraws support from the UPA on this issue.
2. No state election was round the corner within 6 -7 months.
3. UPA knew that they have time of 2 years to suppress the “short time anger” of Indian pupils by introducing new schemes. (one of the scheme may be DTC)
4. Reduction of Fiscal Deficit which will enhance GDP.
5. Reduction of under recoveries of OMCs.
6. Reduction of adulteration.
Though the price is deregulated and market driven; it is not decontrolled yet. So if the crude oil price rises to a higher side, the government has an option to control the price in Indian market (happened in case of APM).
Lastly I like to add that, this decision will certainly increase inflation for a while. But to have a long term benefit you have to bear with the tough decisions taken by GOI. This decision will increase the usage of public transports or the usage of CNG driven vehicles, which in turn reduce the carbon emission. And not to forget that to increase the number of cities under CGD network GOI already notified section 16 of PNGRB act.
The deregulation of Oil and gas is a strategic step.As the market prices are rising,we cannot expect government to pay for it so that we can continue enjoying the priviledges of low prices.So some increase in the prices is justified.The increase in petrol and diesel by Rs 3/litre and Rs 3-4/litre respectively is fine.But the increase of LPG rates and Kerosene by Rs 100/cylinder and Rs 6/litre is high.So i am in favour of deregulation of petrol and diesel prices to some extent.But further increase would hamper the middle class in this inflationary environment.
ReplyDeleteThank you all for your comments. Any further replies to this post shall not be taken into account, as far as the judging process is concerned. The winners shall be announced soon.
ReplyDeleteThanks Again.