Markets: Eerie calm

Markets: Eerie calm

it is not clear when market sentiment can change; as in the past, it can be quite sudden.
At a turn and yet not

At a turn and yet not

RBI could be tempted to cut policy rate to support growth at its bi-monthly review.

Editorial: Diesel disingenuity

Apr 03 2014, 03:09 IST
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SummaryKirit Parikh report quoted out of context

If it wasn’t bad enough that the petroleum ministry decided to refer the matter of raising gas prices to the Election Commission—even finance minister P Chidambaram said it was not required—it has gone and done the same thing with diesel prices. The government’s decision in January last year was quite clear, diesel prices were to be raised to market levels for bulk users, and by 45-50 paise a litre each month for the rest. So, even if diesel under-recoveries had fallen to R5.93 per litre—this still adds up to a whopping R47,655 crore for April-December 2013—there was no reason to stop the practice. More so since, in the past, even when under-recoveries fell to R3.73 per litre—last year in May—prices were still hiked. Yet, the ministry referred this to the Election Commission. Ostensibly because the Kirit Parikh expert committee had suggested keeping a R6 per litre subsidy on diesel. The problem with this argument, the gist of which has been put out in a press release by oil PSU Indian Oil Corporation, is that the government never formally accepted the Parikh report.

Had it done so, it would have had to do the other things recommended by the report. On kerosene supplied through ration shops, the Parikh committee was of the view that, while prices should be raised by R4 immediately, they should be raised regularly, at least in line with the hike in per capita agricultural GDP. All of this was only to be an interim measure. Within 2 years, all ration shop kerosene was to be priced at full market values, with the subsidy (R22,373 crore in April-December 2013) to be given directly through cash transfers—the current subsidy is R34.33 per litre.

The recommendations were even more dramatic in the case of LPG. At the time the report was put out, in October 2013, the government had capped the number of cylinders per household at 9 in a year—the original cap, of 6, had been put in September 2012 but was raised to 9 in January 2013, at the time the diesel price hikes began. The committee wanted this to be reduced to 6—Indian LPG prices, the committee found, were under half those in even Nepal and Pakistan. What the government did in January 2014, however, as a build up to the elections was to raise the cap to 12. Given that LPG subsidies were R532 per cylinder when the

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