Reliance Industries Limited Chairman Mukesh Ambani’s statement that oil may touch $100 a barrel should serve as a wake-up call to the government. At $100 a barrel, the losses of the state-owned oil companies will skyrocket and their share prices will plummet. The government has to understand there is no good or right time to decontrol — prices will always go up and down. When oil prices finally reach $100, the political class will say that it is best to wait till prices come down; but we saw what happened when prices came down — there was no action.
The only way to make the oil situation palatable is to reduce government levies, since they constitute a significant share of the retail price. The government should decontrol simultaneously with a reduction in excise duties, so the price hike can be neutralised. The government may not lose too much money since the higher crude oil prices will also mean some hike in tax collections. But even if the government loses money, there are other ways to make up for this.
The higher revenues from the 3G auctions will help reduce the deficit that can result from lower oil sector levies. The government will also gain from the hike in the capital value of its shares in oil sector PSUs which will occur once decontrol takes place and their profits rise.
Ashok Gupta, New Delhi
Readers should write to:
The Editor, Business Standard,
Nehru House,
4, Bahadur Shah Zafar Marg,
New Delhi 110 002,
Fax: (011) 23720201;
letters@bsmail.in
