Petroleum pricing is once again in focus. The “tough” call apparently did not last beyond four days. There were hints from the finance ministry that the next revision will not necessarily be at the start of the month. But for a government that says it does not have enough cash to purchase poison, continuing with subsidy that is likely to cost Rs3 billion daily – makes little sense.
More than the amount of subsidy, it is the signaling or the lack thereof that is causing greater trouble. When they bit the bullet on May 26, 2022, the Petroleum Development Claim, or simply put, subsidy, had shot up to Rs47/ltr. The price increase of Rs30/ltr brought it down to Rs17/ltr, to levels where the PML-N government inherited the mess.
Four days on, it is back to Rs39/ltr. Each day that goes by without a clear direction is a dent not only on the fiscal kitty, but more importantly for the market that is looking for direction. Recall that even Rs30/ltr increase had brought in some semblance of stability at the money market, and the rupee found some ground to recover.
It could be argued that jacking up Rs60/ltr in a go would have sounded much worse, and that is why May 26 was chosen to break it down. The currency has lost 6 percent since April’s first fortnight decision, and Brent has stayed largely around the recent band of $110-120/bbl.
Another price increase looks inevitable. But why delay the inevitable? Why term it as the Prime Minister’s decision to provide relief during tough times, when you are going to reverse it in a matter of days, and term it “unavoidable”? What looked like a settled matter viz. going back to the IMF, has now once again become fodder for WhatsApp forwards, and drawing room conspiracy theories. The government should not need reminding that much of the upheaval, in the financial and money markets, has been due to the uncertainty linked to the future of IMF programme – and less so with actual economic indicators going haywire.
If you want to continue the subsidy, say it. If you don’t, say that, with a clear action plan, and put an end to never-ending speculation.
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