Category: Pricing Policies & Subsidies

High fuel cost: Onus lies on Centre, states

For six months the prices of petrol, diesel have remained unchanged, resulting in heavy losses for refiners Ever since the start of the Ukraine war in February 2022, the international price of oil has been on the boil. Considering that India imports 85 per cent of its oil requirements, this is bound to impact the domestic price of petroleum products (POL). But the Modi government has ensured that the retail price of petrol and diesel have remained unchanged for a record six months. Around 90 per cent of the domestic fuel retail network in the country is controlled by the three Central public sector undertakings (CPSUs) namely, Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum...
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Govt must take fresh look at gas pricing

The rising cost of natural gas has become a new challenge for key sectors such as fertiliser and power Faced with steep rise in the international prices of natural gas or NG triggered by Ukraine war and disruption in global supplies, and its attendant impact on cost of energy to industries across several sectors especially most sensitive ones such as fertilizers, power, etc., the Ministry of Petroleum and Natural Gas (MPNG) has set up a committee under Dr Kirit Parikh to review the current pricing formula for domestically-produced NG. Out of 54.6 billion cubic meter or bcm consumed in the country, nearly 50 per cent is met from imports such as liquefied natural gas or LNG. Mandated to restructure the...
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Oil price cap to tame Russia will not work

The European Union and other western countries still believe that sanctions could be substitute for military strength despite paying heavy economic costs Faced with steep increases in the price of oil and natural gas or NG, the leaders of the Group of Seven industrial powers or G-7 viz., the United States, Germany, France, Britain, Italy, Canada and Japan have pledged to put in place a system designed to cap the income of Russia from sale of these products. The move has come in the back of the price of NG on September 4, 2022 being 400 per cent more than last year, while on the following day there was a further 30 per cent hike, courtesy the ‘Nord Stream’ shock...
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Fuel crisis: Government must shed adhocism

Currently, E&P firms are allowed to sell their crude at parity with its international price To deal with the fuel crisis, recently the Modi government has deregulated sale of domestically-produced crude oil; and imposed a cess, or windfall tax, of Rs 23,250 per tonne on crude oil and a special additional excise duty (SAED) of Rs 6 per litre. and Rs 13 per litre on exports of petrol and diesel respectively. On July 20, the SAED on petrol was removed and on diesel was cut to Rs 11 per litre. On on one hand, it expects exploration and production (E&P) companies like Oil India Limited (OIL), Oil and Natural Gas Corporation (ONGC), and Cairn Oil and Gas to increase the...
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Whether to resurrect LPG subsidy or not

The Govt should focus on reducing price (sans subsidy) by cutting import dependence, fostering competition by involving private entities and bringing it under GST The recent spurt in the price of LPG in the wake of Ukraine crisis has triggered a demand for resurrection of subsidy which the Narendra Modi government had stopped depositing in beneficiary’s accounts since June, 2020. Is the demand justified? By definition, subsidy on purchase of any given product is subvention or financial assistance provided by the state to a certain class of persons who cannot afford to pay the market-based or cost-plus price from their limited income. In case of LPG, the current price of a 14.2 kg cylinder is around Rs 2000 (in Delhi)....
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LPG subsidy – to resurrect or not

The recent spurt in the price of LPG (liquefied petroleum gas) in the wake of Ukraine crisis has triggered demand for resurrection of subsidy which Modi – government had stopped depositing in beneficiary’s account since June, 2020. Is the demand justified? By definition, subsidy on purchase of any given product is subvention or financial assistance provided by the state to a certain class of persons who cannot afford to pay the market-based or cost-plus price from their limited income. In case of LPG, the current price of a 14.2 kg cylinder is around Rs 2000/- (in Delhi). Assuming that the person can’t pay more than Rs 600/- the government will give her Rs 1400/- as subsidy so that she is...
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Time to reform pricing, subsidy regimes

From October 1, the price of natural gas (NG) on supplies from fields given to Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) on a nomination basis, as well as those given under the New Exploration and Licensing Policy (NELP), has been increased from the current $1.79 per million British thermal units (mBtu) to $2.9 per mBtu – up by $1.1 per mBtu. Going further, the price will rise to $5.93 per mBtu from April 2022 and $7.65 per mBtu from October 2022. Under the NG pricing guidelines in vogue since November 2014, this price – known as the administered price mechanism (APM) — is a weighted average of the price prevailing at four international locations — the...
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Self – reliance in gas – way forward

Delivering the 75th Independence Day (ID) address on August 15, 2021,  Prime Minister, Narendra Modi set the country a target of 2047 – to achieve self-reliance in energy production through a mix of electric mobility, gas-based economy and making the country a hub for hydrogen production. While, electric mobility and hydrogen are futuristic areas, as regards gas-based economy, pursuit of this goal will involve increase in gas consumption to (i) meet additional energy needs for sustaining high growth and (ii) replacing polluting fuels such as coal, fuel oil etc. This could result in further increasing dependence on gas import which is already high at 50%. To prevent this and put India on the path of self-reliance, there is need for a...
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Sun-set on LPG subsidy

The overarching focus of the Government should be on giving relief to consumers sans subsidy as that will be in sync with fiscal consolidation From June, 2020, the Union Government stopped depositing LPG subsidy in the accounts of eligible beneficiaries and the position continues till date. Even as the budget for 2021-22 has provided for Rs 14,000 crore under this head (down from Rs 36,000 crore during 2020-21), it is unlikely that any payments will be made during the current year. What has prompted this move? Was it orchestrated earlier but put into effect only now? To understand, let us reflect on some basic facts. Since January 1, 2015, the Modi–government has been running a scheme for direct benefit transfer of LPG....
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