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Will the new government muster the needed courage to deregulate fuel prices ?
With the unexpected election of a rather stable government led by the Congress and dependent on fewer allies , a window of opportunity has been created to carry out long-delayed reforms in the country's petroleum sector.
One such decision is the free-market pricing of fuels such as petrol and diesel. It has been reported that directed by the Cabinet, the petroleum ministry, in consultation with the finance ministry and Planning Commission, is working on a policy to decontrol fuel pricing. Taking advantage of low international crude price and inflation rate, oil ministry officials have reportedly drafted a proposal to let the state owned oil marketing companies to set the price of motor fuels till crude reaches $75 a barrel. According to the proposed scheme fuel prices will change every three months, based on the quarterly average of global crude price. The arrangement will continue till oil reaches $75 a barrel. The new government also has the opportunity to withdraw dual pricing of kerosene and cooking gas and devise a plan to supply subsidised fuel directly to poor beneficiaries through smart cards or coupons.
It remains to be seen if the new government is able to muster the initial courage to deregulate fuel prices. There are some factors that indicate why the new government may not do so.
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One , there are many in the government and the Congress party who believe that the Congress won because of its pro poor policies thanks to its many cash guzzling subsidy schemes and loan waivers. The political argument of shielding the "aam-admi" (common man) from flaring oil prices powerful and might well prevail . In the last government, deregulation could not be implemented due to opposition from both within Congress and its allies.
Two, there could be opposition from the two largest allies. This time around the main allies of the Congress are the West Bengal based Trinamool Congress , with 19 MPs and led by Mamata Banerjee, and the Tamlinadu based Dravida Munnetra Kazhagam with 18 MPs. Both can be expected to argue against market based pricing for motor and kitchen fuels and Mamata Banerjee can be even more adamant than the Left parties.
Three, of Congress government's own record on the reform front has been patchy. It was the Deve Gowda led United Front government that announced the phased dismantling of the administrative pricing mechanism. It was left to the Vajpayee led NDA government to actually do so in 2001. However, the Congress Government reintroduced control over pricing of transport fuels when the rising.
Even if the new government does deregulate prices - even Murli Deora appears to have joined the chorus- there is no surelty that it would stick to it when crude prices actually rise. The government might well succumb to pressures from within and form its allies to abandon the market pricing regime and resort to control of fuel prices.
Any such reversal of policy will affect the private retailers. Both Essar and Reliance, who had been compelled to close their petrol pumps when crude prices rose and they were unable to compete with the state owned retailers who were selling petrol and diesel at subsidized prices, are trying to reopen their petrol pumps. If the government reverses policy, they will be compelled to close them down yet again.
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