The disruption of Parliament over the fuel price hike was a mark not just of the lack of responsibility of the opposition,and even some UPA partners,but also of Indias unwillingness to face up to the tough challenge of energy reform. The Rs 4 and Rs 2 hikes announced respectively for petrol and diesel still fall short of what was needed at a time when oil marketing companies losses on fuel sales have risen to about Rs 170 crore per day,and when international crude prices are around $70 a barrel,having doubled since the historic lows at the end of last year. The modest hikes were a political decision and do not help a fuel pricing policy that is far from adequate. Fuel is expensive and is likely to be more so in the future. The government cannot continue subsidising it in perpetuity. Persisting with misdirected and misused subsidies means,when things cant be pushed any farther,the reality check will be very hard. To save the public from that rude shock,the government needed to decontrol a long time ago,submitting fuel prices to fully fledged market dynamics. As of now,the pricing policy counters not just efficiency but also equity,since middle-class people owning diesel cars or commercial users of LPG benefit from subsidies meant for farmers and the poor,who should rather be targeted with direct cash or smartcards for diesel and kerosene. Fuel pricing must be rationalised before its too late,and for that bad politics over it must end. At $70 a barrel,international crude prices are still low,but this price window is closing and Indias fiscal deficit is already stretched. Decontrolling now is still easier than it will be once crude reaches a market clearing price of,say,$80 a barrel and the current low-inflationary period is past. Indias oil demand is high and growing fast. Current demand and price distortions hide over-consumption,and a consumption correction requires the true picture market-determined prices. Removing the distortions will,incidentally,also disincentivise the production of fuel-inefficient and polluting diesel vehicles. Even now,change will be relatively painless than anytime later.
