True to form, the Government of India has been caught on the back foot over the pricing of petroleum products. Earlier this year, it formally delinked petrol from the administered pricing mechanism while retaining the more sensitive diesel, kerosene, and LPG under its control. The Empowered Group of Ministers (EGoM) was expected to meet last week to decide on an across-the-board revision of prices. But, for some reason, it let the Oil Marketing Companies to go ahead with the price revision for petrol, while putting off its decision on the rest by another week. The OMCs promptly announced a hike of Rs.5 per litre of petrol — the fourth since June 2010, and the steepest till date. With this increase, petrol price has jumped from around Rs.47 in early 2010 to well above the Rs.63 level in most cities now. Apparently the OMCs wanted to increase the price by Rs.10 per litre but, at the instance of government, decided to limit the rise to Rs.5. Consumers may well be in for another mark up before long.

What has become abundantly clear is that the government has no coherent fuel policy. The steep rise in price notwithstanding, there has been a 12 per cent increase in petrol consumption over the past year. The off-take of diesel also is bound to swell as a consequence of petrol becoming dearer and this, in turn, will push up the subsidy burden of the government. For its part, the automobile industry, which has been recording a consistently high growth in sales over the past 18 months, has changed gear, turning the focus on the production of diesel vehicles. Over a period, the sale of diesel as fuel could rise from the present 30 per cent to 50 per cent. The oil companies incur a revenue loss of Rs.18.19 on a litre of diesel, Rs.29.69 on kerosene, and Rs.329.73 on an LPG cylinder (14.2 kg). They reported a loss of Rs.78,000 crore for 2010-11, which could go up to Rs.180,208 crore this year. The government is supposed to make good the subsidy on these three products, while the oil companies are expected to adjust the price of petrol in keeping with the global crude market trends. In the long run, there has to be a clear policy to promote alternative fuel and electric cars, and also to popularise and promote the use of CNG and LPG in the automobile sector. The explosion in the vehicle population has ensured that, despite the rising prices, the consumption of petrol and diesel has not slowed down. More needs to be done by the Centre and the States to encourage the use of public transport by putting together a convenient and affordable multi-modal transport system in all major towns and cities.


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