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October     Last updated: October 14 : 7:00 p.m.

Editorial
Options on Oil

Those who support the recent petro-price hike and the ones who oppose it for whatever reasons agree on one point—the sudden spurt in global price has dealt a severe blow on the worsening fiscal health of India. International prices of crude oil which ruled around $10 per barrel all through the 1990s, rose to $12 a barrel in 1998-99 and then spiralled to $30 a barrel early this year. After sliding down for some time, they again headed up, touched a new high of $36 a barrel lately and now hovering ground $30 a barrel mark. The rise in global prices has evoked angry protests worldwide including Europe and India going fast on globalisation track has to bear the brunt too. The common people naturally resent all price hikes for these upset their family budgets. And increase in the petro-prices are particulary frustrating as they, in turn, cause an all-round price rise. With inflation already hovering around six per cent, petro-price hike is in nobodby's interests.

But, the flip side of it is equally awesome. Oil Pool deficit which of late, showed welcome signs of decline, has now soared over to Rs 23 thousand crore. Indian petro-products are heavily subsidised and with Assembly elections round the corner, the NDA-coalition has little room to make political manoeuvre on the issue. In such a piquant situation, the Government needed to strike a balance and it rightly did so. For the first time, the Government decided not to pass the entire burden of the rising oil prices to the consumer. Instead the Government decided to "absorb a substantial part of the oil pool deficit by forgoing revenues and by increasing its contingent liabilities. What is more welcome that the Petroleum Minister maintained a total transparency on the issue by delcaring that of the expected Rs 23600 crore Oil Pool deficit, only Rs 8000 crore is being passed on to the consumer. The hike, however, provides a solution only for the "time being" and a long-term solution is a must. Unfortunately, options before the Government are not too many.

A section of economists have strongly advocated to dismantle the administered price mechanism (ATM) and to leave the prices to be determined by the market. They point out that the deadline for opening up the domestic oil-market is March, 2002 and there is no "economic logic" in retaining marketing as an oligopoly or in restricted entry. A competition in the oil marketing, they say, would force the oil companies to cut costs and absorb part of the increase in international prices. But this suggestion appears too text-bookish and no Government would have the courage to go right away to take this bold and extreme step. Another too mild a suggestion has come to the fore that the Government should pursue the cartel of oil-producing and exporting countries (OPEC) to increase production to contain the global price.

In fact, this has been the demand of much of Europe and the US. But, in the near future this is unlikely and hence, the Government must look forward to other solutions, to offset the effect of the price rise on the fiscal health of the country. To begin with the Government must tighten its belt on the non-plan expenditure and then gradually move on to focus more attention on increasing the domestic production of oil and of course, encourage the use of other renewable source of energy. As India can do precious little to impact on the global oil price, it is wiser to set our own house in order.