India Should Not Roll Back Fuel Price Hikes
There have been many voices recently calling for the Indian government to roll back price hikes in fuel that were implemented when the price of crude traded as high as US$ 147 a barrel. There is temptation on the part of the Congress government to give in to such demands with an election imminent. The fact of the matter is the Indian energy bill has been subsidised for far too long creating demand for the commodity that would not exist were prices adequately reflecting their true market cost. Indian subsidies to some degree, even if it is only very small had the effect of pushing world energy prices up further, resulting in our own import bill ballooning.
The hard decision of raising prices has already been taken, the common man has gotten used to higher prices and though the fall in energy prices has been mitigated to a large degree by the Rupee falling against the US dollar. Meaning India has not benefited as much from a two thirds fall in the dollar cost of crude as it would have liked too, any gain in the rupee from this point on means our import bill falls.
India must not lose the opportunity to reduce the amount of subsidies she pays to oil marketing companies because they are forced to sell for the most at a loss. It is an inefficiency of the economy and makes the country less competitive. Rolling back price hikes would be populist, and the real purpose it would serve, would be to ensure that politicians gain re election rather than offer relief to the common man.
The Congress government really should think twice before rolling back price hikes even if it does seem cruel to the common man who struggles. The Government must think about the future of the country, and the economy needs to become more efficient, reducing the subsidies paid to industries which actually contribute to government revenues in most other countries. More importantly India should hedge the risk that prices return to their previous levels by maintaining fuel prices at their current levels.
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