It is easy to guess why the central government waited so long before increasing the retail price of diesel, LPG, and kerosene. These petroleum products are far more politically sensitive than petrol, the price of which was allowed to rise last month. When New Delhi finally squared up with the substantial and sustained rise in global oil prices, the revision in prices announced on Friday was sharp and painful to consumers: diesel up by Rs.3 a litre, kerosene by Rs.2, and cooking gas by Rs.50 a cylinder. The repercussions will be harsh and wide: an increase in the price of diesel, the economy's main transportation fuel, will push up the cost of food items, including fruits and vegetables, eggs, and many other perishables that are moved largely by truck. A hike in transportation costs usually has a cascading effect on food prices. In the context of high inflation, especially food inflation, this is extremely bad news for consumers. The calculation may be that LPG is the fuel of choice of the middle classes rather than of poorer sections but it is clear the Rs.50 price increase is deeply resented. As for the increase in the price of kerosene — the poor woman's fuel — there have been reports that a significant proportion of the fuel obtained from the public distribution system is being diverted for adulterating diesel and other more expensive fuels. But how does this make the price hike any less burdensome for the poor families that rely on kerosene for their daily cooking?
Faced with increases in global oil prices three years ago, the United Progressive Alliance government claimed it strove for equity, apportioning the burden among the stakeholders: the consumer, the government, which levies and collects taxes, and the public sector oil companies. This time too it claims to have softened the blow on consumers by scrapping or reducing customs and excise duties on petroleum and its derivatives, in the process forgoing some Rs.49,000 crore of tax revenue. The oil marketing companies say their “under recoveries” will come down by Rs.21,000 crore. Restructuring petroleum product prices may be an acceptable longer-term objective but any sharp increase in the retail prices will be hugely unpopular in a country where the basic needs of hundreds of millions of people are nowhere close to being met, notwithstanding the high economic growth rate. The government ought to take a major share of the blame for failing to meet this challenge from the standpoint of the people and with a longer-term policy perspective.