OIL prices continue to surge in dollar terms, and are threatening to surpass the inflation-adjusted peaks scaled during the 1979-80 turmoil, a phenomenon guaranteed to make people in various capitals across the world sit up and sweat. In New Delhi, some action would be in order as well. The UPA government?s consideration set includes oil bonds, import duty cuts on crude, excise duty reductions on petro-products, retail price hikes or a combination of these that would soften the impact on every day usage. If runaway oil prices are testing the ingenuity of policymakers all the more now, it is because price revisions have not been done for so long that switching overnight to full-cost pricing is no longer possible. The gap is so wide that it would shock the economy, which already has enough to worry about in the inflationary potential of capital inflows. Under the circumstances, the Union Cabinet?s recent decision to make ethanol-petrol blending mandatory is a welcome development. To start with, it will be a 5% blend and the doping ratio will double from October next year. A notification to this effect is expected soon.
Yet, good intentions are not always translated well into good practice on the ground. Ethanol blending faces much resistance. Started under the NDA regime, it never really took off, despite fiscal sops. Fingers were pointed at lobbyists said to be guarding the interests of alcohol-based chemical industries, liquor producers and even oil companies. But there was much more to it, and the pitfalls haven?t yet vanished. Ethanol, for example, continues to be a state subject. This has meant that various state governments, depending on their compulsions, have laid out policies that have defeated the very purpose of ethanol-petrol blending. Tamil Nadu, for instance, faces a shortage of alcohol for human consumption, and by restricting inter-state movement of ethanol, it has ensured that the policy does not go beyond the paper it is written on. Each state also levies differential taxes/duties, thereby complicating the issue of ethanol pricing. Listing ethanol under ?declared goods? and thus bringing it under the jurisdiction of the central government is the only available option. Aware of this, the UPA government has sought the opinion of the states. But the states may not let their control of this fluid go until they are convinced of a genuine fuel crisis.
