There is a core element of common sense in the BK Chaturvedi report on petroleum pricing, principally because the former petroleum and cabinet secretary accepts the obvious point that domestic prices of petroleum products have to be raised. He also sees the impossibility of doing this in one sweep, and suggests monthly price hikes. This newspaper had recommended quarterly hikes till the point was reached when there was no subsidy, but Mr Chaturvedi has been more ambitious, and seems also to be suggesting that petrol prices should be raised more than needed to end the under-recoveries. However, there is next to no chance of this principal recommendation being accepted, when inflation as tracked through wholesale prices is running at a 13-year high, and when state and Lok Sabha elections are not far away. Despite its virtues, therefore, this will probably figure in the list of unproductive committee reports since, in the end, they achieve little or nothing. The government does not need a committee to tell it that prices have to be raised, or that raising prices will reduce the need for issuing oil bonds; and a committee saying the obvious is not likely to make much of a difference.
Somewhat dubiously, though, the Chaturvedi committee endorses some ideas that have been in the air for some weeks, involving dual pricing of petroleum products and differential pricing for cities and other areas. It has been argued that these can be done through smart cards, or through other mechanisms. However, all such ideas fly in the face of experience and reality, which is that a system that permits large-scale adulteration of fuel can hardly be expected to deliver effective market segmentation for an undifferentiated product. Indeed, given the experience of leakages from the public distribution system (including of kerosene), it is dangerous to introduce marketing schemes that create scope for corruption and the creation of vested interests that live off that corruption. It is both naïve and indeed irresponsible to think that cooking gas cylinders can be rationed, when it is already known that subsidised cylinders meant for household consumption get diverted as a matter of routine to commercial users.
The committee’s suggestions with regard to what is in effect some kind of windfall taxation may be unexceptionable, and will find ready resonance, but the suggestion that public sector companies should not get any benefit from prices beyond $75 per barrel takes away any incentive to maximise price realisation. There is on display in such suggestions a certain innocence of knowledge about market reality and human behaviour that is hard to understand. The old government penchant for distorting markets and introducing impractical controls is, quite clearly, alive and well.
The pity is that sensible alternatives are available. For instance, the committee could easily have recommended a higher excise duty on new diesel cars after keeping in mind some normative usage norms, or a one-time road-tax for existing diesel vehicles, failing which their registration could be cancelled. Such proposals have the merit of being administratively feasible. Meanwhile, the committee should be commended for figuring out how under-recoveries are to be calculated. Right now, though India hardly imports any petroleum products, international prices are taken as the base price and a notional customs duty, insurance and freight are added to arrive at the normative price — given the local price, the under-recovery is easily calculated. Mr Chaturvedi suggests instead that an export-parity price be used and says this will reduce the exaggerated under-recovery figures by 11 per cent.