The increase in petrol price by Rs 7.50 per litre met with howls of protest from almost all quarters. The Bharat Bandh, on May 31, received spontaneous support from the entire political spectrum, even from a section of the ruling party. But oil marketing companies (OMCs) have sound justification for the price increase and the government of India had to bite the petrol bullet as an inevitable recourse. What was most explosive about the whole issue was its timing. The timing was perhaps politically conducive but the economic conditions prevailing in the country, especially the galloping inflationary trend coupled with the sliding value of the rupee, made the situation worse. There is no doubt that oil prices create an inflationary potential since oil is used as an intermediary good in all economic activities. And it is quite evident that the government had to choose between the devil and the deep sea. A situation in which oil prices are not raised and the burden of rising crude oil price and the falling rupee value is absorbed by the government has as much of an inflationary potential as an increase in oil prices itself.
Affecting a price increase in one product is a temporary solution and is based on a linear segmented approach. There are alternative options available, albeit at a broader level. First, policymakers have to work on an integrated energy policy for the country. The Planning Commission has already done substantial work on this in 2006. Second, the pricing of all products in the oil and gas basket has to reflect their relative economic value and should be determined by the market. This would do away with the elaborate exercise of subsidy administration and the associated problem of leakage and exclusion. Third, non-conventional and renewable energy has to be commercialised more; thereby addressing the ills of carbon emission and greenhouse gas generation. Fourth, the gas sector needs a major policy overhaul in terms of investment, output, pricing and regulatory issues. The issues are complex and go beyond the domain of oil and gas, and border on the power sector that is also passing through a phase of critical transition. This brings out the fifth point that pertains to regulatory issues in the oil and gas sector. One fails to understand why the Petroleum and Natural Gas Regulatory Board is not allowed to play its role as envisaged.
Sixth, efficient energy use has to be enforced through various means as advocated by organisations like the Bureau of Energy Efficiency and The Energy and Resources Institute. Research and development in technology and energy application needs to be strengthened. Finally, energy and environment have to be seen together along with our effort towards sustainable development and inclusive growth.
D C Patra
Chief Manager, LPG Strategy
Bharat Petroleum Corporation
Mumbai
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