Need to link prices of diesel, gas to market

The long awaited demand of oil and gas companies to link diesel and gas prices to the market has got a leg up in the economic survey report for 2013-14.

The survey states that the domestic prices of petroleum products, particularly diesel and LPG, need to be raised in line with the prices prevailing in international markets. It says that efforts will also have to be made to contain subsidies through better targeting the poor.

KK Gupta, director marketing at Bharat Petroleum, said the idea to deregulate diesel price and LPG is good but a lot would depend on how government sorts the political and inflationary pressures. “One consequence of increasing the diesel price is it consequently increases the freight and food prices. That has an impact on the interest rates as well. Hence the intent of the government is good but a lot would depend on the geo political pressures. The price of crude has again gone up while Rupee is volatile hence it would be difficult to say by when the deficit between the diesel and market price be breached,” said Gupta.

The report states the importance of targeting subsidies to the poor in both the rural and the urban areas where the proportion of LPG distribution to poor versus the rich is highly unequal. “While there is a significant inequality in the proportion of subsidies received by the poorest and richest households in rural areas, the distribution is more equitable across urban households. However, in both cases, the proportion of subsidies that go to the poor is low,” the survey states.

From an analysis of documents, the survey notes that the proportion of subsidies that go to the poorest quintile is only 0.07 per cent as compared to 52.6 per cent for the richest quintile. In urban areas, the proportion of subsidies that go to the poor is still low around 8.2 per cent.

Salil Garg, director corporates at India Ratings, said the governments’ earlier attempt to reach the targeted section of the people through direct transfer of subsidy has not been successful. The issue is in identifying the rich and poor people on the basis of records. Even in the pilot projects that were undertaken, the reimbursement of subsidy could not take place in all the accounts linked to the retail companies. “Hence the approach is good but it needs to be seen what method government adopts or if it will continue with the linking of Aadhar card and the bank accounts with the retail marketing companies,” said Garg.


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