The government policy has made energy tariff in India the costliest among other fast-growing emerging economies, including China, Brazil and South Africa. Russia is not included because it is one of the world’s largest energy producer-exporters. Energy prices in Russia, China and the United States are among the lowest in the world. India’s high energy cost is stifling its industrial growth potential and export and causing high inflation which affects the whole nation. India’s private sector energy companies are among the highest corporate profit makers.

The prices of petro-products are being raised at will by oil oligopolies with total disregard to its impact on consumers – industrial and domestic — as well as on the national economy. The present lop sided energy policy could prove to be suicidal to the country, which is severely energy-starved, in the long-run. Free pricing of scarce commodities having inelastic demand benefits only suppliers. Nearly 80 per cent of India’s petroleum needs are met through imports. At nearly 139 million metric tons of petro consumption last year, India ranks fourth in the world in this regard. India’s domestic crude oil production is just around 32 million metric tons.

These are reasons enough for the need of a strong government control over this sector to prevent market speculators and profiteers take control of the vital commodity. The oil sector was totally regulated by the government until private sector players were allowed to enter the scene in the 1990s. The prices of products such as petrol, diesel, cooking gas and Kerosene were partly subsidized by the government, which otherwise gets large revenue income out of import tariff, excise duty, production cess and state sales tax on petroleum and products. Much of the petro-product subsidies are covered from the government’s revenues from taxes and levies from this sector.

The price deregulation policy’s proclaimed objective is to reduce the government’s subsidy burden. But, the actual intent appears to be to make energy companies richer by billions of dollars per year. One such company’s books of account showed a net profit of nearly US$ 4.5 billion in 2009-10, even without price deregulation which came last year. Ironically, the government paid no attention to price relaxation requests of the industry as long as it was in the public sector.

In the 1980s, ONGC’s plea for parity between its crude price fixed by the government and the average global crude price on f.o.b. basis was sternly turned down. ONGC crude price was almost 75 per cent cheaper than that of, say, Exxon-Mobil, Shell, Texaco and BP. Thus, the government kept ONGC price-starved for years to keep a check on the rates of end products. Yet, ONGC was able to make good profits, pay high dividends to the government year after year and generate resources to invest in prospecting, exploration and exploitation of oil.

Consider the Chinese policy on energy subsidy and price regulation in the Indian context. China is the world’s largest energy consumer. It is the second largest importer of crude oil. In 2010, China consumed 455 million tons of oil, of which 200 million tons were imported oil. It is the world’s largest producer of thermal and coking coal. The energy sector is highly regulated in China. It is also heavily subsidized. The total subsidy comes close to US$ 30 billion a year. China regards energy as a strategic sector to power the growth of all other sectors of economy. Only a fraction of higher international crude price movement is passed on to domestic consumers. The rest is absorbed by the government.

China’s energy subsidy became a global concern in the 1990s. The high energy subsidy continued even after the country became a full member of the World Trade Organisation (WTO). Recently, the International Energy Agency (IEA) called upon China to cut down government subsidies on electricity, gasoline and diesel. But, Chinese policies are not known to bend under external pressure.

China’s under-priced energy sources have helped the country emerge as an export power house, from ordinary merchandise to high value engineering products and armament. China has exponentially boosted its steel output in the past decade through large trade-distorting energy subsidies. Steel is identified as a strategic industry. From a net importer of steel in the 1990s, China has emerged as the world’s largest steel producer and exporter.

China’s domestic fuel prices are among the cheapest. The completion of the Russia-China crude oil pipeline, last year, has helped the government raise crude oil supplies to its refineries. Lower energy prices have helped China stabilize its domestic commodity prices and control inflation to a large extent. China’s astounding double-digit GDP growth and export growth through the last two decades were fuelled mainly by low cost energy and capital.

As long as gains from overall economic growth outweighs the losses to the exchequer on account of price subsidies of certain key items such as energy, food and capital, China is unlikely to budge from its existing economic policies to please foreign critics. The crucial petroleum sector is directly controlled by the government through its three high-profile public sector petroleum and petrochemical companies – China National Petroleum Corporation, China National Offshore Oil Corporation and Sinopec. China has not allowed foreign private companies to meddle with its petro policy.

Behind the current high inflation rate in India and economic slow-down is the sudden spurt in the domestic energy prices especially over the last two years and the deregulation of this sector. Even some of the capitalist economies offer fuel price subsidies to specific sectors in the public interest. Taiwan, for instance, offers oil subsidy cards to operators of public transport, including taxi-cabs. India’s sudden U-turn from an age-old practice of central control on coal and hydrocarbon production, distribution and pricing to a near total deregulation of this vital energy sector is inexplicable. Certainly, it does not sync with the technical data on the country’s alarmingly low domestic commercial reserves of conventional energy sources. The policy of deregulation has only made a few new operators billionaires overnight. And, all this is at the cost of the industry, agriculture and the common man. India can ill afford a deregulated, over-priced energy sector, now or, maybe, ever. (IPA Service)