Millennium Post

Petrol: take a hike

The petrol price hike a day after the third anniversary of UPA II has come as a shocker to not just an outraged nation but also the allies and the opposition alike. It's the highest one time increase in petrol prices and is sure to delve further into pockets which are already finding it difficult to make ends meet. At one level, petrol price hike was expected after the global hike in crude oil prices and given that the rupee is on free fall lately, it is only economically imperative that the government put back some traction in earnings to stem the ballooning in both fiscal deficit and current account deficit. Petrol prices are an international issue and knee jerk reactions to the price hike that the opposition and UPA's belligerent allies unleashed in dime a dozen does not help. The government provides huge subsidies in all petroleum products and it simply cannot go on doing so. Politically hence it's the biggest weakness of any ruling party and the chief weapon of the opposition, though none has any long term solution to it. Neither can anyone realistically prescribe that the subsidies must go on so that eventually oil companies turn sick. That will be an economic catastrophe.

But that does not mean that the government would sit idle and preside over the difficulties of the common man. One solution that is usually put forth is that petrol prices be deregulated completely and be determined by the market, which a section of the media and experts endorse whole heartedly. That will only mean that a coterie of middlemen will emerge who will control the prices. The rampant inflation under the UPA regime is a case in point about how helpless the government is when it comes to price control of commodities determined by the 'market'. Instead, the government may try to protect the poor if it cannot help but keep the prices at check. This could be done by introducing a differentiated product structure and system by which the rich could pay more than the poor as far as petroleum products are concerned. Those who drive the oil guzzling SUVs, MUVs and the luxury sedans, especially the deisel versions, could surely afford fuel at a price higher than those who don't. For many in the middle and lower classes petrol or petroleum products are not a luxury but a minimum requirement and hence they could be taxed less against proof of their affordability.

This will not dent the government's earnings as much as it will if the prices are kept at a uniform low, neither it will hurt the common man when prices are increased uniformly. This could be one long-term solution and could in the process delink petrol prices with not just commodities but also knee-jerk politics that destabilises both the country and its economy.
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