The report of the expe­rt group on pricing of petroleum pr­oducts released a few days ago has ma­de some extremely bold re­commendations particularly in terms of increasing prices of LPG and kerosene and they need to be lauded for it. As pointed out by the committee, the benefits of subsidies on these petroleum products by and large do not reach the targeted populati­ons at all. On the other hand, adulteration of diesel with ke­rosene has resulted in a significant worsening in urban air pollution apart from the huge financial losses on this kind of consumption.

While petrol has been historically priced high in the country due to its inelastic demand and the fact that it is consumed largely by the up­per income brackets, the committee has also recommended that diesel prices should be market determined. The arguments used by the committee stating that the government can compensate for hi­gher diesel prices through the minimum support price me­chanisms for major products are valid. However, what the committee does not seem to recognise is that our biggest challenge in correcting the energy-pricing framework in India has been our ability to communicate trade offs of th­is kind and convince consu­mers that there would be a fair treatment of their concerns. It also needs to be deliberated wh­ether this form of a compensatory mechanism should even be hinted at or whether we will be perpetuating the non-tr­ansparent distortions in pricing. Similarly, the committee notes that road-based movement of commodities accou­nts for 40 per cent of die­sel co­nsumption and argues that an increase in the price of diesel would not have a significant impact on financial viability of truck operators. However, historical experience wo­uld lead us to expect significant increases in commodity prices with an increase in die­sel prices, leading to widespread protests. It is this argument of rationality that fails when it comes face to face with emotions and perceptions. Undoubtedly, the political implementability of the subsidy increase in diesel prices will be difficult if not impossible.

The other key weakness of this particular committee report is the manner in which it addresses the issue of pricing of products for domestic consumption in isolation of the larger issues. Today, India is im­porting about 74 per cent of its crude oil consumption and, if we continue on a business-as-usual scenario, it is expected that in 20 odd years our import dependency would go up to above 90 per cent. With this kind of an import dependency level, and assuming that refineries produce at the same pattern as they are doing today, the amount of LPG that India will be able to produce would fully (10 cylinders/household/per year) me­et the needs of only about 60 per cent of its population. The rest would ha­ve to be dependent on ke­rosene for meeting its cooking energy needs. Even at this ve­ry high crude oil import levels, the amount of kerosene produced would translate to a per month availability of a mere 1.5 litres per household — significantly lo­wer than the current rural average of 5.7 litres being available to households. Looking at it in another way, if we were to provide househo­lds that do not have access to LPG with kerosene at the sa­me levels of today’s rural average consumption, 30 per cent of In­dia’s households would still not have access to clean fuels (50 per cent of rural). The qu­estion that we need to ask ourselves is that if 90 per cent of India’s rural population today does not have access to clean cooking energy forms, should they be encouraged to move to petroleum pro­ducts or are th­ere other fuel and technology options that India should be developing aggressively. The energy coordination committee that the government set up a few years ago must be re-activated and issues of this nature br­ought to their attention periodically so that conscious decisions are made based on lo­ng-term considerations.

The use of modern informa­tion and communication technologies does provide an answer. If smart cards or biometric cards are being implemented in various pockets of the country for a variety of applications, why then do we ne­ed to wait for the UID process to be completed before starting the planning process for an effective, targeted and integrated delivery of energy subsidies? The price increases suggested by the committee for LPG and kerosene would amount to between ~33 per cent to ~66 per cent of existing prices. This is obviously unenforceable in one go — the price shock to consumers and the political backlash wo­uld be huge. In sum, if the recomme­ndations of the panel do not get implemented, the pro­blem may lie as much in the terms of reference of the committee as in its political savviness.

The writer is executive director, Teri