Belated and incomplete

The Centre’s move to belatedly revise the retail prices of petrol and diesel comes not a day too soon, given the spiralling international prices of crude oil. The reduction in custom duties makes perfect sense as well. It would slash the high effective tariffs on auto fuel and reduce retail prices in tandem. Also welcome is the decision to change the pricing methodology for petro-products, and dump import-parity prices. The fact is that when domestic refiners are assured import-parity prices, they enjoy unwarranted rents. After all, the differential in ocean freight and other associated costs between products and crude can be substantial. And since refiners basically import crude, import-parity prices on products actually have built-in provision for routine unearned rents. They need to be shelved. But the stubbornness in keeping cooking gas (LPG) and kerosene (SKO) prices unchanged is wholly retrograde. It means huge, open-ended subsidies which are totally unjustified.
The fact remains that the non-poor who use LPG certainly do not need give-aways and everyday handouts. And unrevised prices of SKO simply ups the incentive to adulterate auto fuel and go for untoward usage. Clearly, the move to keep LPG and SKO prices unchanged is reckless populism. The fiscal costs would be massive. It would imply high costs right across the board. Also questionable is the far greater hike in petrol prices. The notion that petrol is used by the car-owning elite and diesel is mostly used for public transport is not particularly valid any longer. As it is, petrol consumption in twowheelers has greatly increased; some of the biggest cars on Indian roads now run on diesel. The continuation of ad valorem levies on oil products is also extremely distorting, given the rally in imported prices. What we need are specific moderate duties on products, to avoid needless buoyancy in end-prices. The bottom line is that efficiency, improvement and competitive pricing should replace administered pricing and much opacity. It’s time to refine politics out of oil pricing.

-- The Economic Times Editorial