WHY THERE IS HIKE IN PETROL PRICES ?

DESPITE the decontrol in June last, petrol prices have not been allowed to move with the market. The UPA government did not want to annoy consumers in the run-up to the just-concluded assembly elections. The global crude prices had soared above $120 a barrel due to the turmoil in the Middle East. Oil, of late, is on a downtrend and hovered around $113 a barrel on Monday. The Rs 5 a litre post-election hike in the petrol prices coincides with a crash in global commodity prices and a cut in the jet fuel prices. The UPA’s hefty hike is meant to recoup losses suffered in the recent past. A Cabinet committee will meet later this week to consider raising the diesel and LPG prices.

The double whammy is expected to raise a political storm. The Opposition parties do not let go any chance to draw political mileage out of public anger and organise street protests. Public resentment may soften if oil politics is understood. India’s 80 per cent energy needs are met with imports. Global prices thus impact Indian rates. Petrol, diesel, LPG and kerosene are sold by government firms at below-cost prices. Diesel is kept cheaper because it is used for mass transport by trucks, buses and trains. A costlier diesel raises prices across the board. LPG is subsidised to humour the middle-class housewife. Kerosene is largely used by the poor. Cheap kerosene also comes handy for petrol adulteration.
If the government does not push up petrol prices, the oil firms’ losses shoot up, which are then absorbed by the government with the taxpayer’s money. A petrol price increase hits only the users and may drive them to be economical. High prices bring down demand, and subsequently, oil prices. Thus the market forces correct the imbalance. Experts suggest the decontrol of diesel too. This will invite private companies in the domestic oil sector, encourage competition and help cut operational costs and retail prices.