Now follow through

The half-yearly results of the three public sector oil marketing companies show a combined operating loss of Rs 1,66,800 crore. The figure is almost unchanged from last year, underlining the colossal cost the oil subsidy imposes on the economy. Despite the Union cabinet's decision on Thursday to allow these companies to raise diesel prices in short bursts from now on, the companies will need a huge payout from the finance ministry to erase some of the loss in this fiscal. For the half year, they have already presented a bill of

Rs 85,586 crore to the government, way above North Block's capacity to write a cheque for. The year 2012-13 will end with no improvement in the country's oil economy.

The impact of the cabinet decision could, however, be felt in the next fiscal, provided it is implemented fully. Deregulation of diesel and petrol prices was agreed upon in 2010, but while petrol prices moved to an intermittent market-linked discovery process, that for diesel remains a dead letter. The government did not free up the price mechanism and the oil companies did not bring up any proposal to revise diesel prices for over a year and a half. Therefore, the cabinet decision to allow the companies to make small changes in diesel prices needs careful scrutiny. The government must define what constitutes a small increase. Also, once the oil companies are allowed the freedom to change prices, would the government simultaneously turn off the tap of budgetary support for them? Without clarity on these questions, few chairmen would like to take over the pricing decisions. In the last calendar year, some of these exasperated companies wrote to the government to restore administrative control over petrol prices as their price revision plans were successively stalled, ostensibly on account of a series of political upheavals. Would those concerns recede in the next fiscal?

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