Skyrocketing global oil prices, which have now reached a nine-year high, require an appropriate and comprehensive policy response so that any adverse impact on the Indian economy is minimised and the growth impetus that is now visible not undermined by excessively high energy costs. Petroleum minister Ram Naik has set the ball rolling by indicating that his ministry is discussing with the finance ministry lowering of oil import duties. He has made the obvious point that if Indian industry is to remain competitive, it must be able to access energy at competitive prices.
What is making the high international prices higher still for domestic consumers is the ad valorem duties; as prices go up the incidence of duty goes up, subjecting the consumer to galloping prices. Instead of simply lowering import duty rates, the government can go over to levying specific duty so that stability is imparted to the revenue stream (fall in prices then will not sharply reduce revenue earnings) and eliminate unduly high oil prices.
While relooking duties for the oil sector, it has to be ensured that one section does not benefit at the expense of the other. If the import duty on crude is lowered but that on products remains high, then it will end up boosting margins for domestic processors. That will be counterproductive as then consumers will not be able to reap the full benefit of lower import duties. While looking at a revised duty structure for the oil sector, it is also necessary to use the opportunity to correct an anomaly which has got worse with every recent price change.
There is now an excessive difference between the prices of kerosene and diesel, leading to widespread adulteration of diesel with subsidised kerosene. Consequently, kerosene is not going to those for whom it is intended and the price kept low. Whatever the rationale for subsidising kerosene, it is not serving the purpose. So the price differential has to be lowered for it to reach at least some of those for whom it is intended. This could be done along with the speedier deregulation that the petroleum minister has talked about.<
