So petrol prices have gone up by a whopping 10%, and LPG by an even more whopping 16%. It’s quite ironical that the government, which in the name of the aam aadmi had rolled back a number of reforms has had to do this in the final year of its reign. They say that the prices have been moved up by an amount more than necessary, so as to leave room for a Yashwant Sinha-esque rollback. Nevertheless, for the price of a government-controlled commodity, the increase is significant.
I would put the blame for this on two entities. The first part should go to Vajpayee and Ram Naik. They didn’t finish off the demon of controlled pricing when they had him down and beaten on the cross, and all they had to do was to drive the final nail in. Maybe it was NED. Some say Naik had some special interests. But they failed to do that and off they went for elections confident that they would return in time to drive in the final nail.
The next part has to go to Mani Shankar Aiyar, Manmohan Singh and the rest of the people running this government. Again, using the name of the aam aadmi they rolled back whatever reforms Vajpayee and Naik had made, and completely resurrected the demon. They brought back complete government control over the pricing, and made the oil companies’ shareholders and the taxpayer bleed. Until the companies practically ran out of cash.
Given the way global oil prices have been moving, it was inevitable that the hike had to happen sometime. It’s again ironical that the government refused to take all the price signals and then was forced to act in its last year in power. Maybe if the prices had been left to the market the level would’ve been more now. However, in that case there wouldn’t have been a shock. Prices would have been rising steadily which would have also helped the RBI forecast high inflation better and then take appropriate steps. And the beauty of this is that if liberalization had been completed and one of the three behemoth PSUs had been sold off, then the government could’ve absolved itself of any blame.
Of course, critics of this analysis would say that this would all be good in hindsight and there wouldn’t have been problems if prices hadn’t been moved up. The fact is that full liberalization and privatization of oil distribution would’ve done no worse than this controlled pricing. In case of a hike such as now, it would be one monkey off the government’s back. In case the global prices hadn’t risen, even local prices would’ve stayed low.
Another factor to consider here is that in case of free pricing, there would have been greater competition which would have brought in more players which would have kept prices low. if you recall, a number of private players came in in the 2003-04 period (Reliance, Essar, Shell, etc.) but now they have all but withdrawn due to the controlled pricing.