FE Editorial : Oil conundrum

Has the government pulled off the biggest reform move in recent months, or has it just flattered to deceive on the eve of the Congress party’s internal deliberations on the political environment in the country, including the spate of anti-government protests ranging from Anna Hazare to the anti-rape ones? To begin with, the Cabinet offered a big sop—R9,300 crore in a full year—by increasing the number of subsidised cylinders that each household can get, from 6 in a year to 9 now. Given there is a subsidy of R490.5 per LPG cylinder, there is no case for hiking the subsidies, more so since, as the Kirit Parikh committee pointed out, consumer incomes have increased significantly over the last few years—in other words, consumers can afford to pay the market price for 3-4 cylinders. Oil ministry data, cited by the government when it brought in the 6-cylinder cap, was that the average use of cylinders was about 7-8 cylinders a year.

It is in the Cabinet’s decision on diesel that the greatest confusion persists. The Cabinet Committee on Political Affairs allowed the public sector oil marketing companies (OMCs) to hike diesel prices. Since the markets took this to mean OMCs would regularly increase prices till the R9.6/litre under-recoveries are abolished—this adds up to a subsidy of over R1 lakh crore in a full year—share prices of all oil stocks rose dramatically. While IOC rose 6.6% yesterday, Reliance rose 3.4% on hopes the private sector company would

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