'Mistimed and insensitive', this is how 'The Hindu' defined the UPA's decision to deregulate oil prices.The statement very much explains almost everything about this issue. Calling this action 'inevitable' sounds even more insensitive. According to Mr.Kaushik Basu, Chief Economic Advisor to the Finance Minister, "this reform will rationalise the way we spend money and fuel and will help India become a more efficient global player".The statement shows how much UPA has moved away from the much applauded pro-poor status, it has gained during their first tenure in the ministry.The prime minister's justification is that this reform is intended to safeguard the greater interests of our country. A very relevant question in this context, when the food inflation has touched a whooping 17 p.c is, 'who are we trying to include in the so called inclusive growth?'. The ministry is in fact trying to veil the cascading effect this fuel price hike can have on the prices of commodities.With the inflation curve climbing northwards everyday, this is undoubtedly the worst time for the implementation of such a reform.
The Petroleum Minister Murli Doera's argument that the implementation of this reform aims at saving the OMCs from bankruptcy is also unjustified.According to Petroleum Ministry's annual report, IOC posted a net profit of Rs. 10,998 crores in FY 2009-10 that too after holding the price line for the four major products – petrol,diesel, PDS kerosene and LPG for domestic use.BPC and HPC earned 834 crores and 544 crores respectively as profits in the same Financial Year. When the OMCs are making profits of this margin, the theory of these companies going bankrupt is hard to digest.
It is estimated that without the deregulation, for OMCs the subsidy burden is to produce an under-recovery of around 15,000 crores in FY2010 and around 39,000 crores for the FY2011. This fancy term 'under-recovery' can generate an idea in the mind of a common man reading these statistics that this 'price de-regulation is inevitable' .Under recovery is nothing but the difference between the import parity price [A price charged for a domestically produced good that is set equal to the domestic price of an equivalent imported good -- thus the world price plus transport cost plus tariff - courtsy:http://www.personal.umich.edu/~alandear/glossary/i.html] and the retail price of petrol, diesel,LPG & kerosene, before deregulation. Quoting The Hindu "Under-recoveries are notional losses that only lower book profits relative to some benchmark. Thus, there is little danger that the industry would be bankrupted even if prices were kept at their earlier levels".
When the inflation is rocket shooting to super-high levels,it is highly insensitive to make the common man share the burden of these under-recoveries by imposing the de-regulation on oil prices. The cascading effect of this price de-regulation on the price-hike of essentials have far reaching consequences. The concept of food security cannot be limited to distribution of foodgrains at subsidised rates to BPL families and fuel-price hike connot be de-linked from this.This insensitive reform is infact a denial of the basic right of a human being, 'food security'. The government must not forget the fact that, 77% of our population earn not more than Rs.20 a day for their survival. Whatever may be the reason, keeping their interests hostage is a highly callous and politically self-damaging act.
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