Oil deregulation lacks heart: Swaminathan S A Aiyar

Hold the cheering. The government’s partial oil deregulation lacks any sense of conviction. It has gingerly decontrolled petrol, but not diesel, kerosene or LPG. It has raised their prices, but in a defensive tone that shows its heart lies with subsidies, not deregulation.

Given this attitude when global prices are moderate, expect a return of controls and humongous subsidies if world oil prices rise above $100/barrel, which is likely if the global economy revives or Israel bombs Iran’s nuclear facilities.

The government continues fearing that deregulation will stoke inflation. It refuses to see that countries without price controls—the US, Europe, Japan, Philippines—have just 2-3% inflation while India with all its controls has 10% wholesale and 14% consumer price inflation.

Price controls create distortions and encourage adulteration without curing inflation. The government cannot understand this. Rather, it thinks controls are desirable but unfortunately not affordable beyond a point.