Oil March: Left's on the wrong side of Chinese wall

NEW DELHI: This one goes out to the Left alliance partners of the UPA government as they threaten to stir up a nation-wide protest against the proposed fuel price hike this week.

Red bastion China, oft quoted by desi Left comrades for their economic policies, has muscled up the political will and hiked retail prices of petrol and diesel by almost 12% in the last week of May, the second rise in the last six months. Retail prices in India were last revised in September ‘05 when prices were hiked by almost 7.5%.

This comes at a time when the Indian government is trying hard to hammer out a strategy to meet the global price hike and its impact on retail prices of petrol and diesel. The government is expected to finally bite the bullet this week and announce a marginal price hike even as it doles out yet another bond package to reduce the losses for the oilcos.

Global oil prices are hovering the $75 per barrel mark and countries across the world are beginning to feel the pinch at the retail pump level. Retail prices have been kept unchanged in India despite crude prices increasing from an average $59 a barrel (Indian basket) in September to over $70 a barrel now.

Retail price of gasoline (petrol) has touched a record $3 per gallon mark in the US (1 gallon is equal to 3.78 litre) even as Sri Lanka, Thailand and other Asian economies are beginning to hike pump prices.

China which has maintained a controlled and regulated oil industry structure may have a lesson for India. Retail prices of fuel, has been hiked by almost 25% in the last one year in a bid to move towards international prices.

India, on the other hand last increased prices in September ‘05 and has been unable to allow price revisions despite the deregulated pricing regime, albeit on paper. China, unlike India, has also made substantial subsidy allocations in the central budget to meet the subsidy bill.

Says Mr Fuqiang Yang, vice president of The Energy Foundation in Beijing: “The government has provided for a subsidy bill of almost $9bn to keep prices at this level.”

In China, mounting pressure from MNCs like Shell and BP has only helped the government to take up reforms in petroleum pricing. Says Mr Yang, “The market has been a monopoly till lately but now there is pressure from domestic oil companies and the multinationals.

Refining companies are slowing down operations until there is a correction in pricing. Companies like Sinopec have had to incur huge losses. “This surely rings a bell for India. Indian oil companies have incurred huge losses in the last fiscal and most of them would have been in the red but for the oil bonds.

The government is now working on a similar bail out package yet again of issuing oil bonds. But unlike China, private players and multinationals in India have opted to either tap the huge export market or have slowed down their marketing plans.

But both China and India have a long way ahead and may have some common lessons to draw from. Both economies are growing at one of the fastest pace and it is apprehended that high energy costs could turn out to be the biggest threat to the GDP growth.

China, despite its price revisions and a roadmap to deregulate oil prices is still way behind international prices. According to a government official China’s retail prices of petrol is almost 35% lower than retail pump prices in the US. India’s domestic retail price is lower by almost Rs 10 per litre to the import parity price.