Arbitrary Pricing Mechanism

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: As seems to be its wont, the government continues to do things in half measures. Nowhere is this more apparent than in the petroleum sector. After declaring that it would stand by its timetable for dismantling the administered price mechanism (APM) in April 2002 as proof of its commitment to economic reforms, the petroleum ministry now seems loath to give up total control of the sector, on the ground that it is its duty to protect the weaker sections of society from volatile market forces. So, while petrol and diesel prices are revised every two weeks, though not necessarily reflecting the movement of international oil prices, the policy of subsidising kerosene and liquefied petroleum gas — the two most politically-sensitive fuels which no government has as yet displayed the gumption to tackle — continues. As a result, post-deregulation, the oil companies have seen their subsidy burden ballooning to around Rs 5,500 crore, as domestic prices are kept static while international prices move upwards. True, they have benefited somewhat, thanks to improved margins following price deregulation, and which have been reflected in their bottomline. But if the problems in the Venezuelan oil industry continues, along with the threat of an impending United States’ strike against Iraq, the resulting upward movement in global oil prices will see the Indian oil companies increase their subsidy burden over the next few weeks and months.