A Slippery Problem

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Petroleum Minister Murli Deora has said that the government is thinking of deregulating oil prices. This followed the Kirit Parikh committee recommending the same. Deregulation has been suggested by other committees as well in the past, including the C. Rangarajan and the B.K. Chaturvedi committees. In fact, deregulation should have happened automatically way back in 2002 when the ruling National Democratic Alliance government dismantled the administered pricing regime. But, while it makes for sound economics, it is politically unpalatable if prices start rising rapidly. That is why successive governments have talked about deregulation when crude prices have been low, only to backtrack once the oil prices go beyond a certain point.

The Parikh committee report goes into great detail to figure out the exact impact of the oil subsidies — not only on oil marketing companies, but also on the final consumers. Its inescapable conclusion is that the subsidies that are meant to help the poor end up benefiting the rich as well. For example, the rationale for subsidising diesel is to help the rural, agricultural communities. But rich owners of big cars also benefit from it.

Similarly, while cheap kerosene may benefit the extremely poor, it helps all sorts of urban segments as well. Ditto for cooking gas — it benefits the poor households, but so also the rich housewives.  

The committee has  made many other recommendations also. Some will be easy to carry through, while others will be politically unpalatable. But the government has to make a start somewhere.