Any adult can make a mistake once. Even twice. But
when many adults responsible for the economic life
of our nation enact the same mistake time and time
again, you need to sit up and worry. Nothing
illustrates this better than the
license-control-commissar approach to the pricing of
petrol, diesel, kerosene and LPG.
But I am getting ahead of myself. Here’s the story
so that you realise how peculiarly atrophied we are
when it comes to decision-making.
In January 2002, the price of crude was, believe it
or not, averaging less that $19.50 per barrel. It
was when oil pundits spoke of a so-called ‘long-term
equilibrium’ of oil ruling at around $20-$25 per
barrel. It was also a time when a very far sighted
man called Vijay Kelkar was the Secretary of the
Ministry of Petroleum and Natural Gas.
Kelkar figured that $20 per barrel was the best time
to start dismantling the regime that controlled the
prices of petrol, diesel, kerosene and LPG. A clever
man that he is, Kelkar set up a committee to examine
the issue. Unlike many such committee reports, the R
Committee report (R for Restructuring) was an
excellent piece of work that leveraged the milieu of
soft crude oil prices to outline an eminently
feasible timetable for decontrol.
Unfortunately for Kelkar and the R Committee,
neither did his minister, Ram Naik of the BJP, nor
the wider political class care for the report. Naik
ensured that the report was dead on the water; which
suited every politician and most babus very well
because, as we well know, being ‘commissars for the
people’ runs deep in the Indian blood. Atal Behari
Vajpayee had other fish to fry; the report
asphyxiated in some dusty filing cabinet; and Vijay
Kelkar went on to become the Finance Secretary and
moved on to even higher things.
What a chance we lost! The chart plots something
quite simple. It uses data for international price
of Brent crude and Delhi pump price of petrol;
indexes both to 100 starting June 2002; and then
tracks how these have moved over time. It is a
frightening graph.
Right up to September 2003, there was a parity
between crude and petrol prices. It made a great
deal of sense to decontrol then, because there was
still a tidy refiners’ margin for converting crude
to petroleum products. By December 2004, Brent had
risen to $39.60 per barrel; worse than before, but
still doable. By December 2005, Brent had risen to
$56.86 and the run rate had become steep. A year
later, Brent was at $62.47 and the Indian oil majors
had begun to post large losses. Instead of
re-calibrating retail prices, the government
dithered and decided to bequeath oil bonds to IOC,
HPCL and BPCL. Even here, the sarkar was niggardly.
By December 2007, Brent was at over $90 per barrel,
and the asking rate was impossible. The government
would have needed enormous political courage to
decontrol at that stage, which it didn’t have. By
mid-May 2008, Brent was $123 per barrel and rising.
With Delhi petrol prices ruling at Rs.45.52 per
litre, the game was over. Not even six sixes in the
last over would do.
Reflect on what we have done. We have bankrupted
three good public sector companies: IOC, BPCL and
HPCL. We have not allowed prices to ration demand,
as it would have had markets played a role. Now we
are talking of rationing petrol and diesel. Worse
still, there are crazy ideas about raising petrol
and diesel prices by over Rs.10 per litre in cities,
but leaving village prices unchanged. You don’t take
the right decision at the right time; you bankrupt
oil companies and the fisc; you don’t allow prices
to temper demand; and then you think of dual pricing
which always fails before the ink is dry! What do
you say about adults who make the same mistake time
and time again? Words fail me.
Published: Business Standard, May 2008
