Editorial: Courting reforms

Sep 18 2013, 03:30 IST
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SummarySC strikes right tone but battle still far from won

Given that High Courts in Kerala and Tamil Nadu had passed interim orders so that PSU oil marketing companies (OMCs) could not charge market-linked rates to bulk users like state road transport organisations, this presented a big threat to the financials of the OMCs as well as other oil PSUs like ONGC and Gail. Since January, when the government decided to charge market prices to bulk users, oil subsidies had started falling dramatically—along with a 45 paise monthly per litre hike, this saw diesel under-recoveries fall from R9.03 in January to R3.73 in May. Given how diesel under-recoveries are now up dramatically, thanks to the 16% fall in the value of the rupee since the beginning of year, this means oil PSUs would collectively stand to lose an extra R40 crore every day—after Kerala and Tamil Nadu courts ruled a certain way, other state road corporations were planning to approach their courts as well. Given that the budget has only provided for R178 crore of daily under-recoveries, oil PSUs are bearing the rest—based on the current under-recovery of R486 crore a day, this means oil PSUs are bearing a loss of R308 crore every day. A further 15% hike—which is what an additional R40 crore adds up to—would just hasten the demise of the oil PSUs. Since a severe funds crunch of this nature means the oil PSUs would find it even difficult to import crude oil, any further increase in subsidy actually harms consumers in even the short term.

Given the possibility of other states filing copycat petitions, the Centre did well to approach the Supreme Court to ask it to club all cases before it. While vacating the stay granted by these two courts, the Supreme Court has done well to observe that “the country cannot sustain all types of subsidies … there needs to be proper fiscal management … a balanced approach is needed to see that the economy not just survives but also thrives.” But the battle is far from won, it has merely been postponed as the cases go back to the original courts where, until a final decision is given, the OMCs can charge bulk users like the state road transport units market prices. That final decision, however, could well turn out against the OMCs. Which is why it would have been better if the Centre had managed to convince the Supreme Court to hear

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