Dear Moily, India needs oil deregulation, not petrol pump curfew

Petroleum Minister M Veerappa Moily has decided to do his bit to contain India’s runaway current account deficit. He intends to save $20 billion - the current account deficit in 2012-13 was $88 billion - by compressing the domestic consumption of oil products. India’s import of oil and associated products was worth $144 billion in 2012-13.

He has, so far, revealed three policy ideas to achieve his goal. The first one intends to regulate the opening hours of petrol pumps, from 8 am to 8 pm only. It may come as a surprise to many, but the opening hours of petrol pumps is the one thing in the petroleum sector that the Government has actually not regulated. Minister Moily wants to add that to the list of interventions which ranges from fixing prices of products to fixing quantities supplied in the market.

It hasn’t apparently crossed the minister’s mind that regulating the opening hours of fuel stations will not compress demand. It will probably lead to more wastage as consumers join endless queues at the start and end of the day, letting precious fuel burn as their engines idle waiting for refueling. Perhaps what the minister actually had in mind was the rather more insidious idea of fuel rationing. India’s long experience of quantitative controls shows that this would only lead to the creation of underground black markets, instead of controlling demand.

Moily’s second idea is to raise the amount of oil India imports from Iran. This is because Iran is the only major oil producer which will accept payment in Indian rupees rather than US dollars. How this squares up with Prime Minister Manmohan Singh’s pro-America tilt on dealing with the repressive and roguish regime in Iran is not something Moily is obviously concerned about. Would India, a supposedly responsible citizen of the world, end up encouraging Iran’s recalcitrance on its nuclear programme by cosying up to it in this manner?

Moily’s third idea is to launch a six week campaign, starting September 16, to create awareness about the need to conserve fuel. The awareness drive will no doubt enrich his own ministry’s Petroleum Research and Conservation Agency (PCRA) which will presumably be the recipient of the Government’s largesse for this noble purpose. It is unlikely to make a dent on consumers, particularly those who own vehicles. In the absence of functional public transport systems in most cities and towns, people have every incentive to continue using private vehicles for commuting, the current account deficit be damned.

The one idea that is conspicuous by its absence in Minister Moily’s agenda is raising the prices of petrol and diesel. If there is is one thing that consumers respond to, and that may actually compress demand, it is a price signal. Global oil prices are hovering around $120 per barrel because of the uncertainty created by a possible US military strike on Syria. Those international prices ought to reflect in the domestic prices of oil and its derivative products. But a populist Government refuses to deregulate petroleum prices. It also refuses to raise them to anywhere near market levels. The continued (huge) subsidy on diesel is perverse. It is incentivizing people to buy vehicles that run on diesel. India’s richest citizens run their SUVs on subsidized fuel meant for the poor. Millions of middle class Indians are increasingly buying diesel-powered and not petrol-powered cars.

How can anyone take seriously a Government that allows this perversity in the face of runaway current account and fiscal deficits? How does one take a Petroleum Minister seriously who doesn’t recommend the deregulation of oil prices as a measure to contain the import bill?

Veerappa Moily is on slippery ground, just like his populist Government which seems determined to worsen, rather than improve, its own credibility and India’s economic crisis.