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Parikh report sinks six fathoms deep………S Gangadharan / DNA

Even as oil marketing companies continue to bleed — the first quarter is certain to be a financial disaster for them — the empowered group of ministers, headed by the Union finance minister, Pranab Mukherjee, opted not to bite the bullet.The status quo is clearly untenable and yet the much-hyped meeting opted to have another confabulation soon, pleading that more discussion was needed to take a call on a revision in the prices of sensitive petroleum products.This reasoning is both flawed and flimsy because the recommendations of the Kirit Parikh committee are before this group, embodying the contours of what the thrust of the petroleum policy should be.
http://www.dnaindia.com/money/analysis_parikh-report-sinks-six-fathoms-deep_1393258
And, in terms of timing, circumstances are propitious in that the crude prices, despite the predictable two-sided movements, are basically soft and certainly below the historic highs of the previous year. The inflationary potential is, of course, there, but the price of inaction will be even more onerous on the fiscal as well as the entire oil industry.Apart from the cryptic announcement that the issue would be considered soon, there is no explanation as to why even a half-measure - like some hikes in the prices of auto fuels and kerosene as well as LPG- was not resorted to. Is politics behind this dithering?One has all along suspected that the setting of the Kirit Parikh panel was an attempt to buy time. The government had sat over this report for well over four months and even the constitution of the empowered ministerial group appeared to be an exercise in superfluity as only decision was needed to be taken on its key findings, if not in toto, then to the extent deemed expedient. Sadly, even this was not forthcoming.

Not that the recommendations were sweeping in nature. The report wanted to transit to a stage of nil under-recoveries in petrol and diesel by freeing them from administered control, while mooting an increase of Rs 6 per litre in PDS kerosene and at least Rs 100 in the price of one LPG cylinder, with future hikes linked to per capita income in agriculture in regard to the former and overall per capita GDP in regard to LPG.As in previous occasions, the government had chosen to dither but with a difference; this time, though, even a limited upward revision in the selling prices of petro goods was deferred, with far less justification as the roadmap was already before it.This delay has grave implications for both the health of the fisc and the oil majors. The budget has, in fact, pruned the petroleum subsidy to a mere Rs 3,108 crore for 2010-11 - already, this has been exceeded by the huge payout to oil companies towards under-recoveries for the preceding year - and now, the subsidy bill is set to mount.Similarly, the finances of oil marketing companies are seriously affected by under-recoveries as Centre only partially makes good their losses and they are heading for financially turbulent times.

The simple arithmetic, enshrined in the Kirit Parikh committee report, is very revealing.At $80 per barrel of the Indian crude basket and the exchange rate of $1 = Rs 47, it said that the selling price of petrol should be Rs 51.66 per litre in stead of the ruling price of Rs 44.72 ( at Delhi ), of diesel Rs 39.92 in stead of Rs 32.92, of kerosene Rs 30.76 in stead of Rs 9.23 and of LPG Rs 535.42 per cylinder in stead of Rs 281.20.In April, the monthly average price of the Indian basket stood at $.84.13 per barrel, that is higher than the March average of $78.02.With the exchange of the rupee vis-a-vis the dollar around the level of Rs 47 per dollar, the financial woes of the oil companies are slated to worsen and the fiscal will also come under pressure.
It is a hallowed British tradition that when the government is unable to come to grips with a problem, it appoints a committee to delve into the issue so as to buy time.Our British masters have left our shores for good but the system we have inherited from them, comes handy even now to delay a solution.The government has not covered itself with glory in its handling of the pricing policy for petroleum products. Let us be blunt — nothing worthwhile will come out of the labours of the Kirit Parikh committee

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