There is nothing new in the governments stand on not allowing hikes in the prices of liquefied petroleum gas and kerosene on account of elections. The government, after having dismantled the administrative pricing mechanism (APM) last year, continues to dictate prices of petroleum products and The Financial Express has regularly chastised the government for this. Instead of having a clearly worked out roadmap for dismantling the APM, there has been increased ad hocism in the Union petroleum ministry. This time round, with the Union finance ministry having refused to abolish or even reduce the excise duty on LPG and kerosene as well as rejecting any further subsidies and the oil PSUs protesting that their profit margins are being eroded due to the increased subsidy burden, the petroleum ministry has come up with an innovative scheme: The increased subsidy burden on account of the tightening of international crude prices will henceforth be borne equally between the oil marketing companies, the upstream oil companies that too as reported would be limited to PSUs and consumers of diesel and petrol. This is not only downright unfair for those companies that have not yet entered the marketing arena, such as ONGC, but also for consumers of auto fuels.
Earlier in the year, the domestic and international oil prices were totally out of sync, making a mockery of deregulation. At the time, the reason attributed was to allow the oil PSUs to recoup their losses on account of suppressed pricing prior to the Iraq war though, no doubt, assembly elections in some states were a bigger reason for the government to hold prices. On the same note, the decision to freeze prices of kerosene and LPG till March 2004 has more to do with the fact that four states are going in for elections before the year-end. By postponing the setting up of a regulatory authority and not allowing the market to play its role in oil pricing, the government is only displaying its lack of respect for the voters intelligence. Moreover, by resorting to such ad hocism in pricing, it is actually doing more harm to the oil sector by sending a negative message to prospective investors. Instead, the government should implement its decision to deregulate the petroleum sector within the originally stipulated time period and not allow electoral considerations to take priority.