Given how governments have, historically, been used to telling PSUs what to do, it is incredibly probably that there has been an informal suggestion that oil PSUs do not raise costs of petrol and diesel in response to the larger worldwide costs costs have not been raised for more than 10 days now. Customers are currently feeling the pinch and the government would like to steer clear of costs reaching Rs one hundred per liter in big urban centres, particularly at a time when there are so lots of assembly elections coming up like the crucial West Bengal. Normally, the government could minimize the huge customs and excise duties – it collects about Rs 33 per litre of excise duties and cesses on petrol – to reduce client costs, but offered its substantial deficit, it is understandably not keen to do that. The states can also reduce the VAT they charge of about Rs 20 per litre, but the public narrative of higher costs, like it or not, is focused about higher central levies.
Apart from the apparent hit that oil PSUs like IOC, HPCL and BPCL will take if they are not permitted to frequently hike costs of petrol and diesel – particularly if oil costs continue to rise – there is a different purpose why the government has to enable the oil PSUs to adjust neighborhood costs to account for what is taking place in the domestic market place. And that purpose is the impending privatization of BPCL. If, for the sake of argument, there is a surge in oil costs following BPCL alterations hands, it is apparent the government can not ask it to absorb losses by not hiking retail costs. But if, at that point, the government asks IOC and HPCL to do this, the effect on BPCL’s fortunes will be the exact same. If, say, the value distinction in retail costs is Rs 5 per litre, clients will cease obtaining from BPCL and will, as an alternative, flock to the reduce-priced IOC and HPCL.
Nor is this just a theoretical possibility. Several decades ago, when the government forced the oil PSUs to maintain retail costs low, in spite of possessing committed to no cost them up, clients moved away from the new petrol pump outlets of Reliance and Essar. While the latter had entered into the retail enterprise following the government had committed to ending/lowering subsidies, they began winding down this enterprise and mothballed most of the petrol pumps they had set up.
Should the government ask IOC and HPCL to maintain costs low, substantially the exact same fate will befall the newly-privatised BPCL. Indeed, offered the current refusal of PSU oil firms to adjust costs on a everyday costs, any sensible purchaser of BPCL will possibly want a legally binding commitment from the government on it enabling no cost-market place-pricing to prevail. Privatisation, to the unitiated, may perhaps look like just a course of action of ownership altering hands from the government to the private sector in reality, it is about the government letting go of its irrational manage on costs. Wanting to maintain customer costs in verify is a completely reputable want, but the government has to do this by decreasing its excise duties it can not anticipate the private sector to bear its burden.