How UPA can hike fuel prices without enraging everyone

Earlier this week, the government allowed state-run oil marketing companies to raise the price of petrol by more than 7 per litre, the steepest hike ever. The nearly 12 percent hike upset almost everyone, from Congress allies to consumers.

The fiery protests threaten to force the government to at least partially roll-back the hike, and seems to have scared off any attempt to hike the price of diesel, which was more urgently needed.

[caption id=“attachment_321321” align=“alignleft” width=“380” caption=“The fiery protests threaten to force the government to at least partially roll-back the hike, and seems to have scared off any attempt to hike the price of diesel. PTI”]  [/caption]

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But there is no escaping that fuel price reforms are sorely needed, not least because the current pricing system hits everyone from the government and companies to consumers.

Here is what some experts have suggested to de-politicise the whole issue of raising fuel prices.

One, liberalise diesel prices and allow state-run oil companies to review and revise prices regularly. The revisions could be as frequent as every fortnight. To ensure the hikes are not too frequent or too huge, the level of hikes can be capped. In time, regular revisions of prices will take out the “news headlines” factor out of these decisions and any hikes/cuts can happen without create instantaneous uproar.

Frequent, minor changes in prices are far more palatable to fuel users than one, big hike that angers everyone. As a Business Standard editorial notes: “There is a right way and a wrong way to increase fuel prices. The wrong way is to dither for months and then try to make up for lost time with a hard blow to the consumer’s solar plexus. The right way is carry out small increases every month or two: pinpricks, even if more frequent, do not cause as much hurt as a hard punch, and are more easily tolerated.”

Second, the government needs to stop interfering in the decisions of oil marketing companies to hike or slash fuel prices. Because that makes ‘deregulating’ fuel prices a bit of a joke. Look at petrol prices. In theory, they are supposed to be revised every fortnight by companies, and not subject to government control. But does anyone remember when the last fortnightly revision was? Oil marketers have been clamouring for a price hike since January, but were held back by their political masters because of state assembly elections and then later, because of the Union Budget and ensuing Parliament session.

To be really effective, ‘de-regulated’ fuel prices must be freed from political control. Regular small hikes or cuts in fuel prices will reduce them to non-events instead of turning them into front-page events every time they happen. Experts have mentioned this in the past as well.

Three, to bring subsidies to more manageable levels, the government could consider fixing the level of subsidy per litre of diesel, so that its subsidy burden does not spiral out f control when international oil prices increase. That was also suggested by the Economic Survey 2011-2012. State and central government taxes could also be fixed as a specific amount per litre rather than on the price, which assures them a basic level of revenues. Its something that Firstpost referred toin one of its live debates recently.

Of course, the question is, does the government have the political will to do so?