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14 April 2017 Editorial


14 APRIL 2017

On a glide path?

Hike of fuel prices


Adjusting fuel prices daily at petrol stations is a long overdue reform

Hiking fuel prices at petrol pumps is such a politically fraught exercise that there is even a hesitation to decrease prices so as to safeguard against a possible spike in global petroleum rates in the future. It is worth watching, therefore, how the proposed pilot project by the three public sector oil marketing companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum - proceeds as an effort to reform the pricing mechanism. Starting next month, in select cities fuel prices at the pump point will be reset daily in tandem with global oil price movements. Till the project's outcomes are assessed, the rest of the country will continue with the existing system, under which petrol and diesel prices are calibrated generally on a fortnightly basis. If one considers the latest price change effected by oil companies (a ?3.77 reduction per litre in the price of petrol accompanied by a ?2.91 cut for diesel on March 31), the case for a daily price reset makes eminent sense. Apart from the fact that it is illogical for an economy integrated with the global financial and commodity markets to keep fuel prices unchanged for as much as a fortnight, aligning prices daily and spreading out the degree of change will lessen the impact on consumers, on both the upside and the downside. Marginal changes in the daily price of fuel will not make or break consumer confidence or fuel inflationary expectations, at least because of oil costs, as it currently does.

A more gradual ascent or descent in fuel prices, rather than abrupt shifts over randomly selected intervals, makes good sense, given how closely our fiscal outlook is tied to oil price movements. The United Progressive Alliance government had freed the regulation of petrol prices in late 2010, and the National Democratic Alliance government followed through by liberating diesel prices within six months of assuming office in 2014. Such dismantling was necessary as previous attempts at abandoning the administered price mechanism for India's largely import-dependent consumption of petroleum products never really took off, even as subsidies distorted the system further. The fortnightly system of price resets for both fuels has been followed over the last three years. The latest price cuts came after more than two months of no change, overlapping with the Assembly elections in five States. A transparently formulated and dynamic pricing regime would hopefully prevent such distortionary coincidences in the future. It would also allow private companies to compete with the PSU oil marketers, which today control 95% of fuel outlets. The government, on its part, must start winding down the extremely high petroleum product taxes imposed since June 2014, when oil prices began to fall, along with its energy subsidy liabilities.

Populist's return

Ahmadinejad bid for Presidency 

Ahmadinejad's bid for the presidency reflects the political uncertainties gripping Iran

Mahmoud Ahmadinejad sprang a surprise when he registered himself as a candidate in Iran's presidential election scheduled for May 19. After leaving the office of President in 2013 at the end of two controversial terms, the firebrand populist has been largely inactive in politics. He began as a favourite of the ayatollahs, but during his second term he had a turbulent relationship with Ayatollah Ali Khamenei, the Supreme Leader, who asked him not to run for President again. Mr. Ahmadinejad's defiant return to the race shows the growing significance of hard-line politics in a charged region. As successor to the mild-mannered reformist Mohammad Khatami, he toed a strident line on Israel and the U.S., refusing to meaningfully negotiate with the West over Iran's nuclear programme despite crippling economic sanctions. This election is crucial for Iran as it is seen as a referendum on the nuclear deal it reached in 2015 with global powers. President Hassan Rouhani, who championed the deal on the promise that better ties with the West would help improve Iran's economy, is expected to seek re-election. He faces challenges from hardliners, who say Iran needs a stronger leader who can stand up to Donald Trump's America. The rising anti-Iran rhetoric of the Trump administration, which imposed new sanctions on Tehran over a missile test, has given the hardliners a fresh handle.

Iran's election is a complex process that is partially managed and partially reflects the popular will. At least 120 people have registered as candidates. The clerical Guardian Council will vet the candidates and publish the final list on April 27, removing most dissidents. Thereafter the election is expected to be free. It is not clear if Mr. Ahmadinejad intends to stay as a candidate or plans to shape the election agenda in favour of the hardliners. As of now, the most powerful conservative candidate is Ebrahim Raisi, a close ally of Ayatollah Khamenei and a clear favourite of the clerical establishment. For the conservatives, this is an opportunity to reclaim the presidency - one of the three main pillars of the Iranian state, but the only one with a popular mandate - and reclaim legitimacy for their hard-line agenda. For the moderates, the challenge is to push back the strongman narrative of the conservatives and shape the agenda around economic development and incremental freedoms, as opposed to strengthening theocracy and a stand-off with the West. In 2013, Mr. Rouhani had shown the political aptitude to stitch together an alliance with moderates as well as conservatives who had fallen out with the clerical establishment, while cashing in on popular impatience with the Ahmadinejad government. It is time the political climate changed. It may take greater political guile for Mr. Rouhani to withstand the hardliners' campaign at a time when economic troubles and regional challenges remain and the U.S. is again taking a confrontationist stance towards Tehran.

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