Being pro-poor doesn’t mean not hiking prices
New petroleum minister Dharmendra Pradhan’s first-day-first-quotes have left most confused. When he said, for instance, that he had the interests of the poor in mind—and that this was the mandate the Modi government had got—did he mean his ministry would no longer push for the monthly 50 paise hike in diesel prices to eliminate the R4.41 per litre subsidy that adds up to a whopping R62,837 crore? Or did he mean something else when, he also said, that energy security was important for the country? After all, if energy supplies are inadequate, the poor will be hit the most—the most expensive electricity, as the old saw goes, is no electricity.
While being briefed by his bureaucrats, many of whom have been opposing hiking prices of natural gas as per the Rangarajan formula, the minister would do well to ask them about the recent $400 billion mega Russian deal to supply China with 38 billion cubic metres of natural gas over the next three decades. The costs will differ depending upon what discount rate you use, but experts reckon the cost of the gas works out to between $11 and $13 per mmBtu. While China is willing to shell out that kind of money for energy security, the oil ministry in India is making heavy weather of shelling out even $8-8.5 per mmBtu for domestic producers like ONGC, Reliance Industries Limited and Cairn India even though it is clear no exploration can take place in deep waters at below this price—indeed, the prices may have to be even higher for several gas discoveries. Given that over 40% of India’s gas needs will have to be met through imports in just the next 2-3 years—at $12-14 prices—the bureaucrats need to explain to Pradhan why they are opposed to implementing the Rangarajan formula.
Were the minister to read the Kirit Parikh report, it would be obvious the real poor don’t benefit from subsidised fuel; today’s lead story in this newspaper is even more evocative. When there was a cap of 6 subsidised LPG cylinders per household per year in 2012, domestic consumption grew just 2% while commercial consumption grew 15%—consumption by commercial users is not subsidised. When this cap was raised to 9 in January 2013, the equation changed completely. Domestic usage grew a bit faster, but commercial use fell 4% over the next year—in other words, there was rampant diversion of cylinders from the subsidised home market to the supposedly market-priced commercial segment. When the cap was raised to 12 in January 2014, commercial usage fell a whopping 10%. The lessons are clear for those who wish to learn them.