Kirit Parikh Committee Report: Europe Shows Price Hike May Not Hit Growth

THE report submitted by the expert group headed by Mr Kirit Parikh on a viable and sustainable system of pricing of petroleum products if accepted by the government could boost the prospects of state-owned oil firms. This is because deregulation of petroleum prices at a time when energy prices are moving northwards globally will certainly translate into a secular rise in domestic fuel prices. However, the hike may not necessarily crimp growth, at least going by the experience of Europe. Several European countries, including the UK and Germany, have adopted a high fuel price policy which has actually resulted in curbing its unproductive usage. In fact, the UK and Germany now consume 12-15% less oil compared to what they were burning over four decades ago in the 1970s. In Europe, petrol today costs the equivalent of a little over Rs 85 per litre while diesel range between Rs 66 and Rs 87 a litre—substantially higher than the pump prices in India. The higher fuel prices are mainly due to higher taxes imposed on fuels. Nearly 65% of the petrol price in Europe represents taxes as against 48.5% in India. Similarly, taxes on diesel amount to around 55% in Europe as against 24.6% in India. No wonder these recommendations will dent the already fragile monthly budgets of households and may generate a huge outcry. However, the burden of under-recoveries that had grown out of proportion over last five years needs to be eased before it threatens India’s economic growth. This pain in the short term is actually a necessary evil to ensure that the country retains its ability to invest for future growth. The Kirit Parekh’s recommendations are not much different in spirit from what the Rangarajan committee had suggested way back in February 2006. "Decontrol prices" is the primary motto of both these recommendation reports. Considering the country’s fiscal deficit, the fiscal health of the oil companies and the keen interest that the Prime Minister’s Office has been taking in this report, most of the recommendations are likely to get adopted soon, perhaps with some moderation.