Oil at $200 a barrel?
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| The Kirit Parikh Committee is the third such committee to suggest decontrolling petroleum product prices. Probably politicians will again refuse to do so, and instead decree a modest increase in petrol and diesel prices. Yet the key issue is not whether petrol and diesel prices should reflect today's oil price of $75/barrel. It is that booming Today, the "under-recoveries", implicit subsidy, of oil companies is Rs 60,000 crore. The immediate price increases suggested by the Committee may cut this to Rs 30,000 crore. But if oil goes up to $200/barrel, the subsidy will rise astronomically up to Rs 500,000 crore, eroding funds for all other anti-poverty and development initiatives. In the 1990s, oil cost $16-17/barrel. When it doubled to $35 by 2004, politicians refused to believe it was permanent, and decreed piecemeal price increases instead of price decontrol. When oil doubled again to $70/barrel by 2006, they cut excise and import duties and provided huge subsidies rather than raise prices proportionally. And when oil shot up to $147/barrel in mid-2008, they just closed their eyes and crossed their thumbs. Luckily for them, the global financial crisis and Great Recession then sent oil crashing down to $40/barrel, saving them from facing up immediately to a future of scarce oil. But the global economy is now recovering, so that challenge must be faced. The global recovery looks weak in Europe and North America, but is gathering steam in Booming Asia is sucking in commodity imports from Africa and The world's old oilfields are in steep decline, and large new oil discoveries offshore in Indian politicians say it is politically impossible to decontrol oil prices. They fear that freeing oil prices will stoke inflation, because of the impact on transport costs. But in countries with free oil pricing, like the By Swaminathan S Anklesaria Aiyar, Times of
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