Adjusting fuel prices daily at petrol stations is a long overdue reform

Apr 21, 2017 Editorial, Features / Columnists

Hiking fuel prices at petrol pumps is such a politically fraught exercise that there is even a hesitation to decrease prices so as to safeguard against a possible spike in global petroleum rates in the future.
It is worth watching, therefore, how the proposed pilot project by the three public sector oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — proceeds as an effort to reform the pricing mechanism. Starting next month, in select cities fuel prices at the pump point will be reset daily in tandem with global oil price movements. Till the project’s outcomes are assessed, the rest of the country will continue with the existing system, under which petrol and diesel prices are calibrated generally on a fortnightly basis.
If one considers the latest price change effected by oil companies (a 3.77 reduction per litre in the price of petrol accompanied by a 2.91 cut for diesel on March 31), the case for a daily price reset makes eminent sense.
Apart from the fact that it is illogical for an economy integrated with the global financial and commodity markets to keep fuel prices unchanged for as much as a fortnight, aligning prices daily and spreading out the degree of change will lessen the impact on consumers, on both the upside and the downside.
Marginal changes in the daily price of fuel will not make or break consumer confidence or fuel inflationary expectations, at least because of oil costs, as it currently does.
A more gradual ascent or descent in fuel prices, rather than abrupt shifts over randomly selected intervals, makes good sense, given how closely our fiscal outlook is tied to oil price movements.
The United Progressive Alliance government had freed the regulation of petrol prices in late 2010, and the National Democratic Alliance government followed through by liberating diesel prices within six months of assuming office in 2014.
Such dismantling was necessary as previous attempts at abandoning the administered price mechanism for India’s largely import-dependent consumption of petroleum products never really took off, even as subsidies distorted the system further.
The fortnightly system of price resets for both fuels has been followed over the last three years. The latest price cuts came after more than two months of no change, overlapping with the Assembly elections in five States.
A transparently formulated and dynamic pricing regime would hopefully prevent such distortionary coincidences in the future. It would also allow private companies to compete with the PSU oil marketers, which today control 95 per cent of fuel outlets.
The government, on its part, must start winding down the extremely high petroleum product taxes imposed since June 2014, when oil prices began to fall, along with its energy subsidy liabilities.
Guyana is still to be an oil producer but as a developing country it is gearing to be counted among the large oil producers. Indeed the discovery is coming when the global prices are on the decline. The price of oil is far below the US$120 per barrel.
Be that as it may Guyanese are paying a price far higher than many for its fuel. The cost to the budget is astronomical. This is why the nation is praying for the oil to flow. For one it would save a lot of money to pursue other forms of development.
Its motorists would suddenly enjoy cheap fuel. This is when Guyana may be pushed to adjusting the prices at the pumps, daily, as is contemplated in India.