Economics

The foregoing analysis of the Government policies on pricing of four sensitive petroleum

products leads to the following conclusions:

(a) Explicit formula-based pricing mechanism of petroleum products is not conducive to

establishing a long-term viable and globally competitive oil industry in the country.

(b) As more than 3/4th of the current domestic crude oil requirements is met by imports and

is expected to go upto further in the future, the domestic consumer prices of petroleum

products should be increasingly aligned with movements in international oil markets.

(c) Any ad hoc system of price fixation by the government may provide a semblance of

domestic price stability in the immediate-to-short term, but give rise to serious long-term

instabilities in the demand-supply conditions in the country, competitive functioning of

oil companies, and fiscal soundness of the government.

(d) A viable and sustainable pricing system for petroleum products is a key requirement of

stable, long-term growth of the economy. Similarly, a financially strong and globally

competitive oil industry provides an enduring platform to strengthen energy security of

the country. It is therefore important that oil companies should have the freedom to set

prices based on competitive market conditions. The government needs to extend subsidy

to the targeted consumers in such a manner which does not impinge on the freedom of oil

companies to set prices in the market place.

 There is one more side of Oil Subsidies.Government has started issuing bonds to Oil companies instead of paying them in Cash,this apart from forcing them to bear part of subsidies.These Oil Bonds mature in period from 5-10 years.These payments does not reflect in current Fiscal deficit.These will resurface after these bonds will mature and future government will have to redeem it.

 one wonders how will the future govt do that?Again issue bond?

Firstly to use the OPEC meetings as a means to persuade oil...