Administrative Pricing Mechanism (APM) for petroleum products was dismantled more than a decade and half ago. It could have worked well only when the supply of crude oil and petroleum products from indigenous sources could be more than their imported supplies. The adverse impact of increase in the global prices for the import of crude oil and petroleum products, when they rise and the proportion of indigenous crude oil and petroleum products in their total consumption in the country tends to fall, APM is untenable and unworkable.

This position has arisen from time to time for want of adequate investment in oil exploration, production, refining and marketing. Investment by private business corporations, domestic as well as foreign after all, requires attractive hike in the domestic prices of products. For the UPA government to go by the APM, therefore, would have been quixotic. It wanted to give priority to private investment in oil exploration and production. The mantra of the market forces as the determining factor did not allow prices of any product especially one which has to be imported in large quantities, such as crude oil and gas and petroleum products makes matters worse for their supply to the consumer in India. Demand for petrol, diesel, kerosene and LPG have to be priced corresponding to the cost plus factor and import parity.

The lowering of rates of excise and customs duties in the marketing of petroleum products to reduce their prices for the consumer is, therefore, not wise in fiscal terms. The finance ministry cannot afford to lose substantial revenue from this sector and is bound to suffer heavy loss in revenue when budgetary subsidy together with losses for oil PSUs in the marketing of petroleum products in the country is very high. This is so all the more when the drive for high growth to make headway has to be based on a thin social sector of the affluent in security and satisfy its demand for products of its interest.

Any hike in the prices of petroleum products, however, does not hit only their direct consumers but is also widespread and inflationary impact on the entire economy. It is not surprising that populist opposition tends to be strong and stubborn against any rise in their prices. The price fixation of petroleum products has always posed dilemmas for governments in India. The assumption that a rise in the consumption of petroleum products is inescapable for speeding up and modernisation of the economic growth process has also tended to result in heavy economic and political toll, in the absence of self - reliant and cost effective economic growth and energy policy.

Optimal utilisation of the country's domestic resources to generate and supply energy has indeed been grossly neglected and distorted in the so-called economic reform era. The hectic effort to attract massive inflows of foreign capital and technology to meet the inordinate increase in the demand for import of petroleum products at a pace faster than the rate of India's economic growth has been misconceived and misdirected. Since domestic crude oil reserves have not increased by raising adequate investment to increase the proportion of imported crude oil in the total consumption has touched 70 per cent of its total consumption as against 30 per cent in the mid-seventies of the last century. In the case of petroleum products, the position in which near self-sufficiency had been achieved has also worsened.

The global oil market is volatile. The world reserves of crude oil are uncertain. The importing countries in Asia, especially India, are placed in serious difficulties in the arrangements for the import of crude oil and petroleum products. The US has been using its economic, political and military power to control import-export of crude oil and petroleum products. It is remarkable that the group of oil exporting countries, OPEC, is not in a position to determine the levels of crude oil production and regulate its supplies and prices in the world market. A cavalier and disjointed approach to the management of the critical oil sector is indeed very dangerous for India. The pompous talk of diplomacy and plans of creating India's own international oil exploration companies abroad must not obfuscate reality.

The need is for decisive steps to curb the market demand of petroleum products in the country. The pricing of petroleum products should be determined by this consideration. Alternative sources of energy have to be developed at a fast pace. Priority should be accorded to develop atomic, sun and wind power. The pricing of petroleum products must not be a matter of political-populist bargaining. It is totally wrong to make the demand for low prices for petroleum products as a priority ingredient in the campaign for inflation control by the government. The beneficiaries of low prices of petroleum products, after all, are not people below the poverty line but are mainly the upper crust in Indian society. Some moderation in case of kerosene, may held within limits, if its supplies to the poor is strictly rationed. Even the production of fertilizers and other based of petroleum products must be regulated and minimised as effort to explore and exploit the domestic oil and gas reserves should be stepped up.

For the petroleum ministry in the reform era, so called, foreign oil companies have been more equal than ONGC and OIL. It is time for a change over to provide not just level playing field to them but priority support in investment for search of oil and gas in India, onshore and offshore. The fact is that ONGC has been discriminated against and denied adequate resources for investment for exploration in India. The private investment has only been made by Reliance Industries Ltd (RIL). It is not surprising that the UPA government has gone for entry of foreign oil companies to undertake oil exploration in India offshore and onshore. This involves allocation of highly-prospective oil blocks, offshore and on shore to foreign companies, combined with tax concessions. The decision of the government is in tune with the general policy tilt in favour of opening the doors wide for foreign multinationals to operate in the Indian market in critical areas of production and consumption, has, however, failed to yield positive results. The fact is that foreign oil companies are not interested in oil exploration as their business only but they are also guided by the strategic interests of their home countries. (IPA Service)