After many years of unending debate and political turmoil a decision was taken for petrol price deregulation. Minds of many from Vijay Kelkar to Kirit parikh, those who have been working on the same issue are finally at peace.
Now we all know why this was necessary but let’s take a sneak peek at consequences.
First and foremost will be, Cut down in the under recoveries of Oil Marketing Companies (OMCs). It is estimated that the sum is staggering 22000 crores. Imagine the kind of good work that can be done with the same. 3G auction mop up along with this will actually reduce the fiscal deficit by 1%. However, the way our elected elites will use this money is matter of debate. I hope they will not treat it is as ‘Common Wealth’ and rather share some part of it. If they do so, it will be a boon in a cash strapped times.
Second, Better distribution of incentives within different wealth groups. Major incentive to stop subsidies since long has been inability of subsidies to differentiate income groups. At the pumping station subsidy is availed by each and everyone irrespective of their usage, affordability and income group. Such skewness in motives and implementation is unprecedented and will be normalised with deregulation.
Third will be the revival of some of the major players and better competitive environment. All those in private sector, who were put virtually out of business due to unfair advantage of subsidy availed by OMCs will bounce back. This will ensure better competitive market is available and ultimately end consumer will benefit.
Fourth will be a newly cautious approach towards usage. A research has shown that subsidy may actually prove to be disincentive towards energy conservation and fuel efficiency. This in turn is harmful for carbon footprint as there are rising pressures on India to curb it. Subsidy invariantly puts end user on safe mode removing any restrictions on affluent usage.
Yet there are fears that this could trigger inflation and may cause Reserve bank to push rates up in already difficult times suppressing overall growth. What I feel is, such a rate push is already on the books and inevitable. Deregulation may just prove to be yet another point to lay the blame.
At the end, I would just say that I am relieved that finally a well suited decision was taken. The way it gets implemented and the consequences are treated with, is the policymaker’s arena. It’s great to see that government has finalised something which is against the usual vote-bank encashment strategy and with more such decisions on the cards, there is light at the end of tunnel.
