Ogra is no stranger to dropping “bombs”. No least when it comes to media reporting, month after month, when the petroleum prices go up. All these petrol bombs would look like firecrackers should the government decide to go ahead with Ogra’s determination of tariffs for SSGCL and SNGPL, and the proposed natural gas rate hike.
Recall that the last price revision was in October 2018, and it received quite some flak for the infamous 143 percent increase in one of the many domestic category slabs. That was mostly a result of sensational reporting on part of media, and political scoring on part of politicians. The actual impact was much less, and this space had reportedly pointed it out. The 143 percent increase in the last two slabs barely made 5 percent of total domestic consumption.
Fast forward to July 2019. The gas bomb is mightier. It is 235 percent. Yes. Two hundred and thirty five percent. Unlike the previous exercise, instead in complete contrast to that, the 235 percent increase is tipped for the lowest consumption slab, often termed as the most vulnerable. The highest slab will pay 84 percent more than it was.
Ogra, in its decisions, has tried to explain the method to the madness – telling how discriminatory the existing slabs are especially in the lowest two categories , and why it should be brought closer to the alternate fuels, and how 77 percent of the country uses kerosene and LPG for these purposes. Try explaining that to the masses. Forget masses; try telling that to even those with more sense of understanding of the issue at hand.
Now coming to the most important aspect; the inflation implications of Ogra’s proposed prices. Should the PBS continue computing gas price impact on the basis of simple averages even after July 2019, the percentage change would be calculated at 171 percent over last year. You would remember how grossly the PBS miscalculated the gas price revision in October 2019, which resulted in misleading inflation numbers, which continues to be the case even today, with gas priced 85 percent higher, whereas the actual impact does not exceed 25 percent. (see: High inflation; low common sense, Nov 6, 2019). And the overall impact as gas inflation alone had, as per the latest numbers, was 1.34 percentage points out of 8.82.
So weighted average should make things correct. Right? Yes, weighted average will give you gas price going higher by 204 percent year-on-year. That is because the lowest consumption slabs are proposed to face the highest brunt. So, if the PBS is to alter its methodology, and rightly so, it will result in an inflation impact of 3.21 percentage points, on existing weight.
Are domestic gas prices and the resulting revenues worth the impact that the CPI may cause to the economy’s larger picture? More on that and the merits of Ogra’s decisions, the slackness of previous governments adding to the madness, and whether the government will and should act as advised, later.
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