IIM study suggests deregulation of oil sector

An Indian Institute of Management (IIM), Ahmedabad, study on the oil sector has suggested radical reforms, including complete deregulation, where private and public sector firms are free to price fuel as they deem fit. 

"Reform of the oil sector is long overdue. The problems in the sector emanate from the structure of central taxes and the system of subsidisation through prices," the study said. 

Currently, the government controls prices of petrol, diesel, domestic LPG and kerosene and compensates public sector firms through a complex mechanism that has squeezed out liquidity with the retailers and drained resources of upstream firms. 

It gives oil bonds to make up for a part of the revenue lost on selling fuel below cost and asks upstream operators like ONGC to bear the rest. "The social and fiscal costs arising out of the current method of subsidisation, and taxation are very severe," it said 

Suggesting radical reforms, the study said, "Complete deregulation of the sector allowing oil producers, oil refiners, marketing companies, and integrated operators to price their products as they deem fit" is needed. 

It said the fiscal costs were very large and much larger than that reported in the budget since they do not include the costs of diversion and tax avoidance that result from differential pricing. "Thus in the case of kerosene the cost of delivering Rs 2000 crore to the BPL consumers was in excess of Rs 24,000 crore."

Source: Economic Times

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